LANDON THOMAS Jr. and NIKI KITSANTONISJ
June 28, 2015
Greece Considers Closing Banks to Stem Flood of Withdrawals
ATHENS — Greek government officials and banking executives were meeting in Athens on Sunday evening to consider temporarily closing the country’s banks and perhaps setting limits on A.T.M. withdrawals in an effort to keep the banks from collapsing as the Greek financial crisis heads into uncharted territory.
The meeting came hours after the European Central Bank said it would not expand the emergency loan program that has been propping up Greek banks in recent weeks, as the government has tried without success to reach a new debt deal with international creditors.
If the Greek government closes the banks and imposes so-called currency controls, it would be taking steps similar to those by Cyprus in 2013 to avoid a bank collapse. But in that case, the Cypriot government acted in concert with other European governments as part of a new bailout program. In Greece, the emergency banking measures would be a result of a breakdown in talks with other eurozone countries. The breakdown has intensified pressure on cash-poor banks as jittery Greeks withdraw their savings.
There is still a chance that Greece and its creditors — the European Central Bank, the International Monetary Fund and the other eurozone countries — can come to terms before its current bailout program expires on Tuesday. But there was no sign on Sunday of a solution.
The European Central Bank, for its part, declined on Sunday to raise the limit on its emergency funding for Greek banks — a level currently said by banking officials and analysts to be around 89 billion euros, or about $100 billion — even though businesses and consumers have withdrawn billions of euros in recent weeks.
That rate of withdrawals appeared to increase over the weekend, as long lines formed at A.T.M.s around the country, threatening a bank run that the Greek government would try to avoid by imposing capital controls. But at the same time, the European Central Bank did not cut off support entirely, giving the Greek government some extra flexibility in the coming days.
WHAT’S HAPPENING IN GREECE?
The country became the epicenter of Europe’s debt crisis after Wall Street imploded in 2008. Now, it is struggling to pay its debt, and its people and creditors are growing restive.
Greece’s own central banker, Yannis Stournaras said in a statement after the European Central Bank decision on Sunday that the Greek central bank would “take all measures necessary to ensure financial stability for Greek citizens in these difficult circumstances.”
Before negotiations broke off on Saturday between Athens and its creditors, the government of Prime Minister Alexis Tsipras had been hoping to reach terms that would free up a €7.2 billion allotment of bailout money that the country needs to meet its short-term debt obligations.
Because European officials said on Saturday that Greece’s €240 billion bailout program would not be extended, the big question had been whether the central bank’s president, Mario Draghi, would continue financing the country’s depleted banks.
TIMELINE: GREEK DEBT CRISIS
December 2009 Credit ratings agencies downgrade Greece on fears that it could default on its debt.
May 2010 Europe and Greece reach a $146 billion rescue package, conditional on austerity measures. Some economists say the required cuts could kill the patient.
January 2015 Greek voters choose an anti-austerity party. Alexis Tsiprasbecomes prime minister.
May 2015 Greece quells fears of an imminent default, authorizing a big loan payment to the I.M.F.
June 2015 Greece defers a series of debt payments until the end of the month.
Guidelines of the European Central Bank dictate that it can keep supporting troubled banks as long as there is a possibility that the country in question will come to terms with its creditors on a bailout — as was the case with Cyprus.
But unless Athens and its creditors resume talks before Tuesday, the promise of European support for Greece is no longer on the table.
Many of the members of the European Central Bank’s governing council appear to have lost patience with Athens. Last week, Jens Weidmann, a council member who is the powerful chief of Germany’s central bank, warned — as he has done frequently in recent years — that the central bank should be extra careful about continuing to back Greek banks.
On Saturday, amid intense discussions between Greece and its creditors, officials representing the I.M.F., to which Greece owes €1.6 billion on Tuesday, were trying to persuade European leaders and Mr. Draghi to keep the bank emergency assistance flowing.
The idea, according to people briefed on those conversations, was to give the country some flexibility for a few more days until the political situation in Athens cleared up.
The European Central Bank’s decision to cap the emergency loan program, as opposed to canceling it, “allows the Greek banks to remain in a sort of coma – not functioning but not dead,” said Karl Whelan, an economics professor at University College in Dublin. That way, he said, the Greek financial system might be revived if at some later point if Greece secures a deal with its creditors.
Early Sunday, the Greek Parliament approved Mr. Tsipras’s request for a public referendum on the proposal offer by Greece’s creditors, with the vote to be held next Sunday. Mr. Tsipras and other Greek officials have asked European officials and Mr. Draghi to keep the central bank assistance in place until the vote.
Yannis Dragasakis, a deputy prime minister and one of Mr. Tsipras’s top economic advisers, met with Mr. Draghi on Saturday in Brussels to plead that case before returning to Athens for the talks with other Greek officials on Sunday.
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