Greece in shock as banks close, capital controls imposed, imminent default risk increases

Greece in shock as banks close, capital controls imposed, imminent default risk increases
# 29 June 2015 17:32 (UTC +04:00)

Baku-APA. Greece was in shock on Monday as it woke up to closed banks, capital controls and an increasing imminent default risk, as politicians, analysts, media and ordinary people feared, APA reports quoting Xinhua.

The leftist government's decision on Saturday to call a referendum for July 5 on the draft reforms-for-cash deal creditors had tabled before the breakdown of five months negotiations was a catalyst to a string of developments over the weekend.

Eurogroup sent a message to Athens that the extended bailout that kept the country afloat since 2010 expired on June 30, as agreed in February.

The European Central Bank followed by freezing the extra emergency funding for Greek banks.

In a dramatic televised address on Sunday night, Greek Prime Minister Alexis Tsipras blasted international lenders once again as blackmailers who do not respect a nation's right to freely decide upon its future, and urged Greeks to reject an "unacceptable" offer and announced the capital controls as part of efforts to stave off the banking sector's collapse.

By government decree, banks and the Athens Stock Exchange were shut from Monday until July 6. Those in Greece who queued in front of ATMs during the weekend to withdraw cash from now on face a 60-euro-per-day limit.

Pensioners lining up outside a limited number of bank branches to get their pensions amidst stepped up security measures and commuters looking for gas in petrol stations appeared divided. Some expressed agony, others defiance.

"They were supposed to pay our pensions today, but nothing. I don't know how to use an ATM, and I don't have any debit cards to withdraw money from the cash machine. I cannot take even 60 euros. Why did Mr. Tsipras leave us in the dark, without any warning? These pictures in the streets and in front of the banks and the supermarkets brought to me memories from the past," pensioner Nikos Papageorgiou told Xinhua outside a bank branch here.

The front pages of Greek dailies reflected the country's turmoil: "The referendum shakes Europe" read Avgi (Dawn); "Eight-day war with closed banks" added Dimokratia (Democracy). "The country in turbulence" read Ethnos (Nation).

As creditors had launched a new marathon round of talks in a last minute bid to avert Greek bankruptcy and possible Grexit, opposition political parties and representatives of the business world urged the government to seek a compromise by Tuesday at midnight.

On June 30, Greece needs to pay back about 1.5 billion euros (1.67 billion U.S. dollars) in loan installments to the International Monetary Fund. A failure to meet its obligations for a second time in a month could set in motion the procedures to default in coming weeks.

In a press conference in Brussels on Monday, European Commission President Jean-Claude Juncker called on the Greek government to tell Greek people the entire truth on the way to the referendum and urged citizens to vote in favor of the draft deal and Greece's stay in the euro zone, meanwhile dismissing ultimatum allegations.

"Between submission and Grexit, Greece chooses democracy," said Foreign Affairs Minister Nikos Kotzias during a frenzied round of meetings with ambassadors from European to Asian countries.

Out on the streets of Athens, pro-government and pro-European protesters have scheduled two new rallies in front of the Greek parliament on Monday and Tuesday respectively, while pollsters predict that six out of ten voters will vote 'Yes' in Sunday's referendum.

Computer engineer Stratou Kalafateli, 29 years old, questioned the necessity of a referendum at such a critical period.

"It is tragic what is happening in Greece today. During the weekend, I went to five ATMs to take some cash for my needs and there was no money...I don't believe that the referendum was the right option. People have no information what 'Yes' and 'No' represents," she told Xinhua.

Meanwhile, conservative main opposition party leader Antonis Samaras suggested the government immediately call off the referendum, while municipalities across Greece said there was no money and time to conduct it.

In a letter addressed to Tsipras, Athens Chamber of Commerce and Industry President Constantinos Michalos stressed that "when banks close, the real economy's heart ceases to beat."

As chambers and businessmen were estimating the impact on the economy, Michalos made a plea to the government to "act in a responsible manner and reach a deal with creditors, to put an end to divisive rhetoric and avert a looming national tragedy."

Officials assured that the supply of gas, electricity and medicines would not be disrupted in the near future, while the tourism ministry stressed that capital controls would not affect those traveling to Greece who use debit or credit cards issued abroad.

In the meantime, non-urgent operations scheduled in hospitals were cancelled as patients preferred to keep the cash, doctors told Xinhua.

"This is a Black Monday for the European Union vision. A fundamental principle of free capital transfer has been annulled. Capital controls will be imposed for a limited period, but meanwhile the economy will be idle," economist Dimitris Tsagaris said.

The expert noted that the fact that capital controls were imposed for a second time in three years in the eurozone dealt a heavy blow to the european common currency zone.

While speaking to Xrima (Money) financial daily, Professor Panikos Dimitriadis who has served as central banker in Cyprus and witnessed the first time capital controls were imposed within the eurozone, warned that after the imposition of capital controls, all sides should try harder to achieve a compromise agreement to restore stability and liquidity.

"If it lasts for long, the repercussions will be nightmarish, it is never too late to find a solution," he said.