There are financial crises, and then there are financial crises.
Greece is smack in the middle of the latter.
Today Greek officials instituted drastic controls over the country’s financial institutions, making it difficult (if not impossible) for citizens to access money locked down in bank accounts. Officials have limited cash withdrawals to just 67 USD per day, a move that is causing panic amongst those who either live paycheck to paycheck, or who rely solely on the use of cash to make ends meet.
The sense of unease was evident in the number of pensioners lining up at bank branches hoping they might open. Many elderly Greeks don’t have ATM cards and make cash withdrawals in person, and so found themselves completely cut off from their money.”I came here at 4 a.m. because I have to get my pension,” said 74-year-old Anastasios Gevelidis, one of about 100 retirees waiting outside the main branch of the National Bank of Greece in the country’s second-largest city of Thessaloniki.”I don’t have a card. I don’t know what’s going on. We don’t even have enough money to buy bread,” he said.
And here I thought relying on cash instead of the almighty plastic was a safe bet.
Fears of default, and an all-out bank run, have followed the breakdown of negotiations between Greece and its creditors. Greece’s bailout ends Tuesday, which means that if negotiations don’t proceed, or if an extension is not granted, the flailing country will lose access to all of its remaining funds, and will be unable to pay back the almost 2 billion euros it owes the International Monetary Fund. Over the weekend, Prime Minister Alexis Tsipras announced a surprise July 5 referendum in which voters will decide whether or not Greece should stay on the euro, or leave the Eurozone and revert back to the drachma.
Eurozone officials blame the Greek government for the stalled debt negotiations, saying that Greek “egotism” is to blame. European Commission chief Jean-Claude Juncker told the media that the negotiations were broken off unilaterally with Tsipras’ call for the July 5 referendum; still, Juncker insisted that dropping the euro was a non-option for Greece.
German Chancellor Angela Merkel generally echoed Juncker’s comments, but went further by saying that she would be open to continuing discussions even after the Sunday vote.
The AP explains what Eurozone officials are offering:
The capital controls come ahead of a big 1.6 billion-euro payment Greece has to make to the International Monetary Fund. It’s unlikely to be able to pay that without financial assistance.Greece’s bailout program with its European creditors officially expires Tuesday, meaning the country will not have access to any of the money still available if it doesn’t secure a deal.For months, the left-wing led Greek government, elected in January on a promise to bring an end to the hated austerity that it blames for an acute economic recession, has failed to agree on a package of spending cuts and reforms demanded by creditors in exchange for access to the remaining 7.2 billion euros ($8.1 billion) in rescue loans.The sight of an economy on the precipice hit global markets hard Monday. In Europe, the Stoxx 50 index of leading shares ended 2.5 percent lower, while Germany’s DAX slid 3.6 percent. There were also some early warning signs that Greece’s problems may prove contagious — the borrowing rates of other highly indebted eurozone countries such as Italy and Portugal inched up slightly.
My explanation of the referendum above was overly simplified; in reality, Greeks will be deciding whether or not they’re willing to agree to the specific terms laid out by Greece’s creditors:
“Should the agreement plan submitted by the European Commission, European Central Bank and the International Monetary Fund to the June 25 eurogroup and consisting of two parts, which form their single proposal, be accepted? The first document is titled “Reforms for the completion of the Current Program and Beyond” and the second “Preliminary Debt sustainability Analysis.”
For Eurozone officials, the choice is clear—vote yes, and we’re here to help; vote no, and the next step will be to decide whether or not Greece is allowed to remain on the euro.
Featured Image via AP Video.
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