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Greece closes banks after bailout talks break down

Greece has closed its banks and imposed capital controls to prevent financial chaos after the breakdown of bailout talks with its international creditors.

The move, which left many depositors scrambling for cash, came at the end of a weekend which saw Greece lurch closer to a potential exit from the European single currency, confronting the eurozone with a rupture unprecedented since its launch in 1999.

The escalation in the Greek debt crisis triggered a sharp reaction on financial markets on Monday. The euro was down by almost 1 per cent and European stock markets experienced heavy opening losses.

Greece’s financial stability council, grouping the banks, regulators and government, decided to impose the controls on Sunday night after the European Central Bank said it would freeze the amount of emergency loans it supplied to keep the Greek banking system afloat.

Announcing the capital controls on television, Alexis Tsipras, Greece’s prime minister, assured Greeks that their bank deposits were safe.

He blamed the European authorities for the decision, saying they were seeking “to stifle the will of the Greek people. They will not succeed.”

The shutdown of the banks will last until at least July 6 and cash withdrawals will be limited to €60 a day, according to a Bloomberg report citing a statement by the Greek government.

The cashing of cheques will be halted and fixed term deposits will be locked down. The Athens stock exchange will also be closed.

Some Greeks unaware of the closure knocked on locked doors at 8am, only for security guards to move them on, while others withdrew their daily limit from cash machines that had been inundated with withdrawals all weekend.

Grey steel shutters covered the entire ground floor of the huge Alpha Bank headquarters on the city’s Stadiou street.

Security guards manned the building’s small side entrance down an alleyway, where employees were allowed in, but desperate customers were turned away.

Kostas, a 51-year-old depositor, was refused entry and sent away after pleading with guards.

“My wife and I fly to Canada on Monday,” he said. “And our passports and her jewellery are in the deposit box in there,” he added, clutching a plastic wallet containing his flight tickets. “If this carries on then I don’t know what we will do.”

Dimitris Nathaniel, an 82-year-old Alpha Bank customer, said the bank’s closure represented the breakdown in Greek society caused by the five-year-long crisis.

“They are closed because Greece is broken. The country has been ripped into parts and now there is panic,” he said. “This will last a long time.”

The imposition of capital controls followed a move by the Greek government late on Friday night to call a referendum on new bailout terms offered by the country’s international creditors, triggering a showdown with Greece’s eurozone partners and pushing the country closer to “Grexit”.

Eurozone finance ministers on Saturday refused a Greek request to extend the bailout programme which is scheduled to end on Tuesday, leaving the fragile Greek financial system exposed.

The two sides were deadlocked over plans to give Greece €15.3bn in urgently needed loans in exchange for austerity measures and structural reforms.

People wait to use ATM machines to withdraw cash at a bank in Athens

On Monday, the commission gave formal approval to the imposition of capital controls. Jonathan Hill, the financial stability commissioner, said: “The imposed restrictive measures appear necessary and proportionate at this time.” But he added: “The free movement of capital will however need to be reinstated as soon as possible in the interest of the Greek economy, the eurozone, and the European Union’s single market as a whole.”

The US stepped up its intervention in the crisis, with President Barack Obama calling Angela Merkel, the German chancellor, to urge moves to ensure that Greece remained in the eurozone.

Jack Lew, US Treasury secretary, issued a statement after talks with his German and French counterparts urging creditors to consider debt relief for Greece, a position resisted strongly by Germany and other euro members.

Pierre Moscovici, EU economy commissioner, said on Monday that it was not too late for Greece and its creditors to reach a deal.

“We need to convince the Greek government to call for a Yes vote,” he told RTL radio station. “We have to have a compromise . . . We have to continue to talk to each other.

“Positions were not far apart. The referendum is a political coup.”

The ECB’s policy making governing council said on Sunday it could no longer provide extra funding for Greece’s lenders. It pledged to work with Greece’s central bank to “maintain financial stability”.

“Following the decision by the Greek authorities to hold a referendum and the non-prolongation of the EU adjustment programme for Greece, the governing council declared it will work closely with the Bank of Greece to maintain financial stability,” the ECB said.

It added that the ECB “stands ready to reconsider its decision” — leaving the door open to emergency intervention.

Meanwhile, William Dudley, the president of the Reserve Bank of New York, said that Greek risk was a “huge wild card”.

Up to €89bn in emergency loans, dubbed Emergency Liquidity Assistance, had been approved by the council, made up of the heads of the national central banks and the ECB’s six senior officials — led by president Mario Draghi.

Billions of euros have left the Greek banking system as the relationship between Athens and its international creditors has deteriorated.

Mr Draghi said: “We continue to work closely with the Bank of Greece and we strongly endorse the commitment of member states in pledging to take action to address the fragilities of euro area economies.”

Yannis Stournaras, the Greek central bank governor, said: “The Bank of Greece, as a member of the eurosystem, will take all measures necessary to ensure financial stability for Greek citizens.”

In a sign that Greece’s creditors will continue to apply pressure to Mr Tsipras during the referendum campaign, the European Commission late on Sunday published a 10-page revised bailout offer that it said it was prepared to offer Athens before Mr Tsipras unexpectedly cut off talks on Friday night.

The revised offer contains few additional concessions: the most significant was agreeing to Greek demands that hotels be included in a 13 per cent value added tax bracket to protect its tourism industry rather than the 23 per cent standard rate. But the move illustrated how deeply Mr Tsipras’ decision to hold a referendum has damaged the eurozone’s trust in his government, calling into question whether any agreement to avoid Grexit can be reached.

 

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