Greece moved to check the growing strains on its crippled financial system on Sunday, closing its banks and imposing capital controls that brought the prospect of being forced out of the euro into plain sight.
After bailout talks between the leftwing government and foreign lenders broke down at the weekend, the European Central Bank froze vital funding support to Greece's banks, leaving Athens with little choice but to shut down the system to keep the banks from collapsing.
Banks are expected to be closed all next week, and there will be a daily 60 euro limit on cash withdrawals from cash machines, which will reopen on Tuesday. Capital controls are likely to last for many months at least.
"The more calmly we deal with difficulties, the sooner we can overcome them and the milder their consequences will be," a somber-looking Prime Minister Alexis Tsipras said in a televised address. He promised bank deposits would be safe and salaries paid.
Even as Tsipras spoke, the lines forming at petrol stations and in front of the shrinking number of bank machines that still contained cash highlighted the scale of the disaster facing Greeks, who have endured more than six years of economic decline.
The failure to reach a deal with creditors leaves Greece set to default on 1.6 billion euros of loans from the International Monetary Fund that fall due on Tuesday. Athens must repay billions of euros to the European Central Bank in the coming months.
The impending default on the IMF loans leaves Greece sliding toward a euro exit with unforeseeable consequences for Europe's grand project to bind its nations into an unbreakable union by means of a common currency. It also carries broad implications for the global financial system.
After months of wrangling, Greece's exasperated European partners have put the blame for the crisis squarely on Tsipras' shoulders. The 40-year-old premier caught them by surprise in the early hours of Saturday by rejecting the demands of lenders and calling a bailout referendum.
The creditors wanted 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.
After announcing the referendum, Tsipras asked for an extension of Greece's existing bailout until after the July 5th vote. Euro zone officials refused, and in his televised address Tsipras bemoaned the refusal as an "unprecedented act".
Despite the hardening of positions, officials around Europe and the United States made a frantic round of calls and organized meetings to try to salvage the situation.
U.S. President Barack Obama called German Chancellor Angela Merkel, and senior U.S. officials urged Europe and the IMF to come up with a plan to hold the single currency together and keep Greece in the euro zone. The German and French governments announced emergency political meetings.
Reproduction, in whole or in part, is authorized as long as it includes all the text hyperlinks and a link back to the original source.
The information contained in this article is for information purposes only and does not constitute investment advice or a recommendation to buy or sell.
