Greece took a major step towards exiting the EU’s common currency on Saturday after eurozone finance ministers rejected Athens’ request to extend its bailout programme through next week’s surprise referendum, a decision that officials acknowledged would unleash significant economic turmoil.
Jeroen Dijsselbloem, the Dutch finance minister who chaired the meeting, said the decision of Alexis Tsipras, Greece’s prime minister, to reject an offer from his country’s creditors and call the referendum on its contents had short-circuited talks aimed at finding a compromise on a set of economic reforms to unlock €15.3bn in desperately-needed aid.
Without an agreement, Greece’s EU bailout will expire on Tuesday, leaving it without enough money to meet a €1.5bn loan repayment due the International Monetary Fund the same day. It will also struggle to pay salaries and wages and face being cut-off from emergency central bank loans that have been keeping the country’s banking system running.
The prospect of losing that banking lifeline sent depositors to ATMs all over the country as account-holders scrambled to withdraw money before an anticipated bank holiday and capital controls, which officials believe will be needed to prevent a bank run.
The eurozone’s 18 finance ministers reconvened on Saturday evening without their Greek counterpart, Yanis Varoufakis, to discuss the fallout from the economic turmoil that is expected to grip the country. In an interview, Pierre Moscovici, the European Commission’s economic chief, acknowledged Brussels may need to assist the Greek authorities with implementing capital controls. But he insisted the eurozone was strong enough to survive any repercussions.
“We have all the tools needed to address any situation,” said Mr Moscovici. “The eurozone is much more stable than it was three years ago.”
“Monday could be a bank holiday,” said Michael Noonan, the Irish finance minister, after the evening session. “It is not a question of waiting to see what might happen on Monday in terms of a crisis. The crisis has commenced.”
Mr Tsipras stunned his nation and its international creditors by announcing the referendum, arguing only the Greek people should decide how to respond to what he called the creditors’ ultimatum. He urged a rejection at the polls, but two eurozone officials said Mr Varoufakis predicted a “yes” vote in the plebiscite during the eurogroup meeting.
Negotiators for the creditors had been preparing to present a new compromise offer to the Greek authorities that, according to one EU diplomat, included “lots of things they could sell”. But Mr Tsipras’s move dashed hopes of striking a deal at Saturday’s meeting, meaning there will be no programme in place when Greek voters go to the polls to offer a verdict on the creditors’ proposal.
Mr Dijsselbloem suggested even if Greece voted to approve the bailout plan it would be hard for its eurozone partners to continue to trust Mr Tsipras’s leftwing Syriza government to implement it — hinting a new government would be necessary.
Q&A: the options for Greece’s banking system?
People line up to withdraw cash from a National Bank ATM in Thessaloniki, Greece June 27, 2015. Greek Prime Minister Alexis Tsipras called a referendum on austerity demands from foreign creditors on Saturday, rejecting an "ultimatum" from lenders and putting a deal that could determine Greece's future in Europe to a risky popular vote. REUTERS/Alexandros Avramidis
Greek banks are on the edge of failure. Deposit flight is accelerating and Greece’s funding options are running out. Every euro withdrawn from cash machines is backed by emergency funding from the European Central Bank. Without an extension to Greece’s bailout, these ECB emergency loans are in doubt.
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“If a government has spoken so negatively about the package and approach, then there is little credibility that even after a ‘yes’ [vote] that it would implement it in a right and conscientious way,” Mr Dijsselbloem told reporters after the Greek delegation left the meeting. “If a ‘yes’, who are we trusting, who are we working with to then implement that programme?”
In the clearest sign yet that eurozone officials are anticipating significant economic upheaval in Greece, Mr Dijsselbloem said “the situation in Greece will deteriorate very rapidly” without a bailout agreement in place.
At a post-meeting news conference, Mr Varoufakis appeared taken aback that his colleagues had cut off talks and allowed the programme to expire, saying he had anticipated negotiating up until the referendum vote so that his government could eventually campaign in favour of the deal.
“We didn’t have a mandate to sign a non-viable, unsustainable proposal,” he said. “If the Greek people wanted us to sign on the dotted line, we would — even if that meant a government reshuffle or some other kind of configuration at the level of government.”
A key issue now will be the continued functioning of the Greek financial system. The European Central Bank, which must approve emergency loans to keep Greek banks open, said its governing council would meet “in due course” to discuss the situation. “The ECB is closely monitoring developments,” it said.
One person familiar with the matter said a teleconference had been scheduled for Sunday morning between the Bank of Greece and the ECB to discuss options for possible capital controls to be imposed from Monday.
One option would be to declare a bank holiday, rather than formal restrictions on capital movements, until a referendum was held. But Mr Varoufakis told Reuters banks should stay open during the referendum period. The government has the final say on capital controls.