A Holiday Ride with Greece: Banks Still Afloat but Default Looming

Written by | Tuesday, June 30th, 2015

Greece announced that it was considering imposing capital controls and also that it would keep its banks closed for at least one week after international creditors refused on Saturday (27 June) to provide another tranche of funding, which is indispensable for the country to avoid default. The country’s finance ministry later issued a statement saying that capital controls did not really comply with the monetary union and that they were certainly not the government’s preferred choice. In response to the growing uncertainty, the Greeks lined up in front of the country’s ATMs to withdraw cash. The German foreign ministry has moreover advised its citizens travelling to Greece to take plenty of cash to avoid eventual problems with local banks.

The country’s banks are currently kept afloat thanks to emergency funding of the National Bank of Greece but they are dangerously moving towards a default since a 1.6 billion-euro payment is due to the International Monetary Fund (IMF) today (30 June). Although the European Central Bank (ECB) initially said that it would not increase the level of emergency funding of Greek banks, it announced on Sunday (28 June) that it would maintain its Liquidity Assistance (ELA) at the level that was agreed two days earlier.

To that end, an ECB spokesperson confirmed that “Greece still has access to the ELA”. In a statement, the ECB also quoted the words of Bank of Greece Governor, Yannis Stournara, who promised to “take all measures necessary to ensure financial stability for Greek citizens in these difficult circumstances.” During the weekend negotiations, the Greek government took everybody by surprised by announcing that it would hold a referendum on 5 July, in which the Greeks themselves will decide whether or not the country should accept the creditors’ new offer. Meanwhile, the Greek government said that it considers the new deal as “not viable”.

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