ECB freezes emergency loans to Greek banks at €89bn
A visitor walks past the European Central Bank (ECB) logo, featuring a euro symbol, in Frankfurt, Germany, on Thursday, May, 20, 2010. Europe's debt crisis will depress the euro still further after it declined to the lowest level since 2006, according to UBS AG and BNP Paribas SA. Photographer: Hannelore Foerster/Bloomberg©Bloomberg
The European Central Bank has refused to grant more emergency loans for Greek banks, a drastic move that will pave the way for the introduction of capital controls or bank closures by the authorities in Athens.
The decision followed the surprise move by the Greek government to call a referendum on new bailout terms offered by the country’s international creditors, triggering a rupture with Athens’ eurozone partners and pushing the country closer to exiting the single currency.
Eurozone finance ministers on Saturday refused a Greek request to extend the current bailout programme beyond its scheduled expiry on Tuesday, leaving the fragile Greek financial system exposed.
The ECB’s policy making governing council said on Sunday that it could no longer provide additional vital funding to Greece’s troubled lenders as the bank pledged to work with Greece’s central bank to “maintain financial stability”.
“Following the decision by the Greek authorities to hold a referendum and the non-prolongation of the EU adjustment programme for Greece, the governing council declared it will work closely with the Bank of Greece to maintain financial stability,” said the ECB statement.
It added that the ECB “stands ready to reconsider its decision” — leaving the door open to emergency intervention.
The Greek Financial Stability Council was due to meet at 4pm discuss the banking situation.
Without any new funds from the ECB, Greek banks are likely to struggle to honour the deposit withdrawals that are expected in the run-up to the July 5 referendum.
That increases the pressure on the Syriza-led government to enforce capital controls to limit withdrawals from the country’s lenders. Athens could also choose to close the banks tomorrow to stave off a run on deposits.
Asked by the BBC on Sunday before the ECB announcement whether capital controls or bank closures were inevitable, Yanis Varoufakis, the finance minister, said: “This is a matter that we’ll have to work on overnight with the appropriate authorities both here in Greece and in Frankfurt.”
Greek banks have relied on the emergency funding since February, when the eurozone’s central bankers cut off access to their regular loans.
Up to €89bn in emergency loans, dubbed Emergency Liquidity Assistance, had been approved by the council, made up of the heads of the national central banks and the ECB’s six top officials — led by president Mario Draghi. Two-thirds of the council’s voting members must vote down any request for ELA from the Bank of Greece.
People stand in a queue to use ATM machines to withdraw cash at a bank in Athens on June 27, 2015. Greece will hold a referendum on July 5 on the outcome of negotiations with its international creditors taking place in Brussels on June 27, Prime Minister Alexis Tsipras announced. AFP PHOTO/ ARIS MESSINISARIS MESSINIS/AFP/Getty Images©AFP
People stand in a queue to use ATM machines to withdraw cash at a bank in Athens
Billions of euros have left the Greek banking system in recent weeks as the relationship between Athens and its international creditors has deteriorated.
Mr Draghi said: “We continue to work closely with the Bank of Greece and we strongly endorse the commitment of member states in pledging to take action to address the fragilities of euro area economies.”
Pierre Moscovici, European Commissioner for Economic and Financial Affairs, Taxation and Customs, tweeted that the door was still open for negotiations to keep Greece in the eurozone.
Yannis Stournaras, BoG governor, said: “The Bank of Greece, as a member of the Eurosystem, will take all measures necessary to ensure financial stability for Greek citizens in these difficult circumstances.”
Hans-Werner Sinn, president of the German Ifo Institute, called on Greece to impose capital controls and introduce a new currency and said creditors should take a haircut following an orderly exit from the euro.
“The foreseeable insolvency of Greece is deeply regrettable. Greece now needs to immediately introduce a new electronic currency as legal tender and must stop all euro payment orders to other countries abroad and impose capital controls”, Mr Sinn said. “The new currency would devalue against the euro, which would make the country competitive again.”