With the dramatic events of Friday and Saturday still being considered, the European Central Bank (ECB) met on Sunday and decided that it would not extend Emergency Liquidity Assistance (ELA) to the Greek central bank above its current level of €89 billion. It has been ELA that has allowed banks in Greece to stay open and allow nervous citizens to withdraw cash. The ECB had little choice in the matter since it is only allowed to lend to banks which are solvent, but in difficulty. With the collapse of talks on Friday, it is all but inevitable that Greece will default on loans from the IMF and ECB which fall due on 30th June; the day that the current bailout program is also set to expire.
Whilst Mr Tsipras was at pains to try to calm his countrymen, noting that: “In the coming days, what is needed is patience and composure. The bank deposits of the Greek people are fully secure”, it is not quite true. If the country does leave the Euro, people’s bank deposits will be converted to the equivalent value in the new currency. This currency will rapidly devalue and their buying power outside of Greece within the rest of the Eurozone (or anywhere else after a currency conversion) will fall significantly.
In the wake of the ECB decision, Greek authorities have decided that Greek banks will remain closed this week. Individual, daily cash withdrawals (from any ATM still loaded) are to be limited to €60 in a bid to maintain liquidity. The decision was published in an official journal and noted (somewhat disingenuously) that the decision was taken as a result of the Eurozone finance ministers’ decision: "to refuse the extension of the loan agreement with Greece". An extension offer was on the table when Greece announced that they would hold a referendum, effectively ending negotiations. The Athens stock market is also to remain closed on Monday.
It is still clear that her European partners and the USA wish to see Greece remain within the Eurozone, but it is just as clear that the Greek government has no appetite to make the structural reforms required of it. Rhetoric from Greece is very counterproductive at this time: suggestions that the Eurozone is not respecting the democratically expressed wish of the Greek people would seem to be an odd mixture of the cynical and naive. The Greek mandate stops on the borders of the nation – even the radical left must surely recognise that inconvenient truth.
