Monday 29 June 2015

Capital controls and Bank Run in Greece

Greece crisis deepens as banks close for a week after weekend that shook euro
Greece’s government says banks will stay closed until after snap referendum, while stock exchange shut on Monday and cash machine withdrawals limited

28 June, 2015

Report from Guardian cжrrespondant, Helena Smith

On Monday morning Greeks will find their savings blocked and their banks closed for a week following a fateful weekend that has shaken Europe’s single currency.

The Greek government decided on Sunday night it had no option but to close the nation’s banks the following day after the European Central Bank (ECB) raised the stakes by freezing the liquidity lifeline that has kept them afloat during a six-month run on deposits.

The Athens Stock Exchange will not reopen on Monday either. The dramatic move, after 48 hours of sensational developments in Greece’s long-running battles with creditors, was sparked by the country’s prime minister, Alexis Tsipras’s Friday night call for a referendum on its creditors’ demands. That prompted finance ministers of the eurozone to effectively put an end to his country’s five-year bailout by the International Monetary Fund, the ECB and the European commission.

In a brief, televised address to the nation, Tsipras threw the blame onto the leaders of the eurozone. But he did not say how long the banks would remain shut, nor did he give details of how much individuals and companies would be allowed to withdraw once they reopened.

Greek crisis: Banks shut for a week as capital controls imposed - as it happened
Greek banks will not open until July 7 in an attempt to avoid financial panic, after ECB capped the emergency funds keeping them running

It later emerged that the banks would be kept shut until after the referendum on 5 July and there were reports that the withdrawals from cash machines would be limited to €60 – about £40.

The prime minister said that Saturday’s move by the eurozone’s finance ministers to halt Greece’s bailout programme was unprecedented. He called it “a denial of the Greek public’s right to reach a democratic decision”.

Tsipras added that the finance ministers’ initiative had prompted the ECB to curb its assistance, forcing the government to take the steps that it had. He said he had once again appealed for an extension of the bailout until after the referendum, on 5 July, sending his proposal to the president of the European council, Donald Tusk, the leaders of the 18 member states of the single currency, the commission and the ECB.

As fears spread through Sunday that capital controls would need to be put in place, growing numbers of depositors lined up at ATMs, even in affluent city areas, to withdraw what cash they could.

The country’s plight deteriorated sharply on Friday night when Tsipras put his country’s future in the balance by suddenly calling a referendum and arguing robustly for a rejection of the price set by his creditors for saving Greece, at least for a few more months. This Sunday’s vote will ask Greeks whether they approve or disapprove of the last offer tabled by the creditors before the negotiations broke down.

But during a marathon parliamentary debate that ended in the early hours of Sunday morning, opposition leaders argued that it was, in fact, a vote on whether Greeks wished any longer to be part of the eurozone. It will be Greece’s first referendum since the country voted to abolish its monarchy in 1974.

The European commission said on Sunday for the first time in the crisis that it wanted to offer Greece debt relief, Tsipras’s central demand during the five months of stalemated talks. Reports from Berlin said that Angela Merkel and François Hollande shared that view.

But the potential concession appeared to come too late to prevent growing chaos in Greece – and sparked concerns across the Atlantic. Barack Obama was said to have called Merkel to urge her to take action. Jack Lew, the US Treasury secretary, urged creditors to offer debt relief to Greece.

Financial analysts will be watching the impact on the markets, which have not yet had the chance to react to the events of the last 48 hours. Mario Draghi, the president of the ECB, tightened the screws somewhat on the country.

The governing council of the ECB decided to freeze emergency liquidity assistance to the Greek banks, the lifeline that is keeping the national financial system functioning. The ELA was capped at last Friday’s level of €89bn. It meant that the banks could continue to function, but the draining of money as people flocked to the ATMs to retrieve their savings also meant they would run out of money that could not be replenished by the central bank.

We continue to work closely with the Bank of Greece,” Draghi said.

Greece’s financial stability committee, which includes the finance minister, Yanis Varoufakis, and the central bank governor, Yannis Stournaras, met on Sunday evening to discuss Greece’s rapidly shrinking options. The high-level political confrontations on Friday and Saturday produced the greatest uncertainty over Greece and in the eurozone in the five-year debt saga.

The fall-out from the collapse of negotiations and the calling of the referendum brought recrimination on all sides and predictions of gloom.

The German finance minister, Wolfgang Schäuble, said he was “perplexed and depressed” by developments. Jeroen Dijsselbloem, the Dutch finance minister who heads the committee of eurozone finance ministers, said that with his referendum call, Tsipras was thrusting the country into a mess from which it would struggle to recover.

We are millimetres away from the total collapse of the Greek financial system,” warned Herman Van Rompuy, until last year the president of the European Council and heavily involved in years of Greek rescue negotiations. “It’s actually suicide that’s taking place in Greece right now.”

The restrictions being imposed are anathema to Tsipras’s radical left-led government – all the more so since it desperately needs to keep public opinion on its side ahead of the referendum.

Varoufakis told the BBC in a Sunday interview: “Capital controls within a monetary union are a contradiction in terms.” But he was party to Sunday night’s decision.

In the early hours of Sunday, parliament voted 178 to 120 in favour of holding the referendum. Embarrassingly for the government, the neo-Nazi Golden Dawn movement joined Tsipras’s Syriza party and its populist right-wing coalition partner, ANEL, in backing the proposal.

By Sunday evening, however, it had not received the necessary endorsement of Greece’s president, Prokopis Pavlopoulos.

According to two polls published on Sunday, Tsipras faces an uphill battle to secure the rejection he has indicated that he favours. One in the right-leaning tabloid Proto Thema found 57% of those interviewed favoured acceptance of the creditors’ latest offer. Another in the centre-left To Vima put support at 47%.

Greek Capital Controls Begin: Greek Banks, Stock Market Will Not Open On Monday

28 June, 2015

Update 3Bloomberg, citing Kathimerini, reports that Greek banks will remain closed until July 6.

Update 2: Greece's Skai reports that if/when banks reopen (supposedly on Tuesday), a 60€ withdrawal limit will be imposed.

Update: In a televised address to the nation, Greek PM Alexis Tsipras assured Greeks that their deposits are safe despite an upcoming bank holiday and despite the fact that Greek stocks will not open for trading on Monday. Tsipras also said Athens has re-applied for a bailout extension and urged Greeks to "remain calm" in the face of what is sure to be a turbulent week.

Despite the reassurances from any and all elected (and unelected) officials, given the run on bank ATMs in Greece has turned into a stampede, it is not surprising that:
The announcement was made when Piraeus Bank CEO Anthimos Thomopoulos told reporters after a meeting of the government’s financial-stability panel on Sunday. The launch of capital controls just as the Greek summer tourism season starts, is sure to be the final crushing blow to Greece, whose entire economy will now grind to a halt.

At the same time, Finance Minister Yanis Varoufakis said an announcement would be made after a Cabinet meeting due to start imminently in Athens. Which is ironic considering just earlier today Varoufakis said he is opposed to the "very concept" of capital controls:
Capital controls within a monetary union are a contradiction in terms. The Greek government opposes the very concept.
Yanis Varoufakis (@yanisvaroufakis) June 28, 2015

Banks will remain shut until at least after a July 5 referendum called by Prime Minister Alexis Tsipras on whether to accept austerity in exchange for a European bailout, Kathemerini newspaper reported, citing unnamed sources.
Reuters is also reporting that the Greek stock market will not open on Monday (leaving us wondering just what that will do to the Greek ETFs liquidity in US markets) as hedgers scramble to protect un-closable losses wherever they can.
More from Reuters, which reports that "Greece's banks, kept afloat by emergency funding from the European Central Bank, are on the front line as Athens moves towards defaulting on a 1.6 billion euros payment due to the International Monetary Fund on Tuesday."

The ECB had made it difficult for the banks to open on Monday because it decided to freeze the level of funding support it gives the banking system, rather than increasing it to cover a rise in withdrawals from worried depositors.
Amid drama in Greece, where a clear majority of people want to remain inside the euro, the next few days present a major challenge to the integrity of the 16-year-old euro zone currency bloc. The consequences for markets and the wider financial system are unclear.
The head of Piraeus Bank, one of Greece's top four banks, speaking after a meeting of the country's financial stability council, said banks would be shut on Monday while a financial industry source told Reuters the Athens stock exchange would not open.
"It is a dark hour for Europe....nevertheless from where we're sitting we have a clear conscience," Greek Finance Minister Yanis Varoufakis said earlier in an interview with the BBC.
Greece's left-wing Syriza government had for months been negotiating a deal to release funding in time for its IMF payment. Then suddenly, in the early hours of Saturday, Tspiras asked for extra time to enable Greeks to vote in a referendum on the terms of the deal.
Creditors turned down this request, leaving little option for Greece but to default, piling further pressure on the country's banking system.
The creditors want Greece to cut pensions and raise taxes in ways that Tsipras has long argued would deepen one of the worst economic crises of modern times in a country where a quarter of the workforce is already unemployed.
Pro-European Greek opposition parties have united in condemning the decision to call the referendum on the bailout terms, but people on the streets of Athens backed the decision.
"I want him (Tsipras) to knock his fist on the table and to say 'enough!'," said resident Evgenoula.
Many leading economists have voiced sympathy with the Greek government's argument that further cuts in spending risk choking off the growth which would give Greece some prospect of servicing debts worth nearly twice its annual national income.
The IMF has pressed European governments to ease Athens' debt burden, something most say they will only do when Greece first shows it is trimming its budget.
Long lines formed outside many ATMs on Sunday, including some of 40 to 50 people outside some in central Athens.
The Bank of Greece said it was making "huge efforts" to ensure the machines remained stocked.

The German foreign ministry said tourists heading to Greece should take plenty of cash to avoid possible problems with local banks and some tourists said they were joining the ATM queues.

"I am trying to go over to the bigger banks," said Cassandra Preston, a Canadian tourist. "I am here for another month and I would like to make sure I have some cash on me."

* * *
In other words, Greek speculators (and of course, those depositors who were dumb enough to still have money in local banks) just got CYNK'd - you can buy stocks all you want, but if the market is about to fall out of the bottom, you simply are not allowed to sell.

Which, incidentally, is coming to every centrally-planned, banana "market" near you...

Ignoring Tsipras Plea For Calm, Greeks Storm ATMs, Stores, Gas Stations

28 June, 2015

Just a few hours ago Greek PM Tsipras addressed his nation imploring then to "remain calm" and reassuring them that their "deposits were safe." It appears the Greeks did not believe him. Many were wondering where thGreek bank lines were for the past several months. Turns out the local depositors were merely waiting until just after the last minute to withdraw their funds... horde gas... and stack foodGreece, it appears is Venezuela - the new socialist paradise.

Tsipras implored: "Keep Calm...."

They did not listen...

Call that an ATM line...

Now THIS is an ATM line...
This ia an ATM queue in the centre of Athens now #Greece #Greferendum
Loukia Gyftopoulou (@loukia_g) June 28, 2015

??????? ????????????. ??????.
Kosmas Themelis (@kosmasthem) June 28, 2015

How Greece looks like after capital control announcement by SYRIZA-ANEL #europe #euro #Eurozone#EuropeanUnion
Poseidon (@Kons_u) June 28, 2015
????? ? (@sissy_mitr) June 28, 2015

Lines outside ATM in #Thessaloniki this evening via @gatosg#greece #athens #Greferendum
Omaira Gill (@OmairaGill) June 28, 2015

ATM queues growing by the hour in #Greece#euro #GreeceCrisis
New Europe Investor (@neweuropeinvest) June 28, 2015

Even at the airports...
Resending this as there is at least one other ATM with cash at athens airport out of shot. I've joined the
Elliott Gotkine (@ElliottGotkine) June 28, 2015

And gas stations are overwhelmed...

Scene at the petrol station near my hotel. Busy, certainly. but not manic. #Greece
John Hooper (@john_hooper) June 27, 2015

As grocery stores and general appliance stores come under seige...
???????? ??????? ???????, ????. ???? ??? ???? ?????????...
???????????????????? (@LPapastergiou) June 28, 2015

We have seen this before - in Russia recently as the Ruble collapsed and citizens spent any and every piece of currency they had on 'assets'.

Simply put - it's all about inflation expectations. And unlike The Fed or The BoJ, who keep trying to jawbone higher expectations into their citizens' minds, the Greek government may have achieved it implicitly through devaluation expectations and with it - a spending spree before things get more expensive and implicitly a surge in GDP. Of course, however, the spending surge can only be short-term and will stop as soon as there are no more euros to spend.

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