Greece Will Close Banks to Stem Flood of Withdrawals

By LANDON THOMAS Jr. and NIKI KITSANTONISJUNE 28, 2015

New York Times

ATHENS — Greece will keep its banks and stock market closed on Monday and place restrictions on the withdrawal and transfer of money, Prime Minister Alexis Tsipras said in a televised address on Sunday night, as Athens tries to avert a financial collapse.

The government’s decision to close banks temporarily and impose other so-called capital controls came hours after the European Central Bank said it would not expand an emergency loan program that has been propping up Greek banks in recent weeks while the government was trying to reach a new debt deal with international creditors.

Mr. Tsipras said on Sunday night that the European Central Bank’s decision was an attempt to “blackmail’’ Greece.

The debt negotiations broke down over the weekend after Mr. Tsipras said he would let the Greek people decide whether to accept the creditors’ latest offer. That referendum vote is to be held next Sunday, after the current bailout program will have expired.

By closing banks and imposing other controls on the movement of money, Greece is taking steps similar to those by Cyprus in 2013 to avoid a bank collapse.

But in that case, the Cypriot government acted in concert with other European governments as part of a new bailout program. In Greece, the emergency banking measures were be a result of a breakdown in talks with other eurozone countries. The breakdown has intensified pressure on cash-poor banks as jittery Greeks withdraw their savings.

There is still a chance that Greece and its creditors — the European Central Bank, the International Monetary Fund and the other eurozone countries — can come to terms before its current bailout program expires on Tuesday. On Sunday, the European Commission and I.M.F. issued statements indicating the door to further discussions might still be ajar.

And in Washington, the White House issued a statement saying that President Obama and the Chancellor Angela Merkel of Germany had spoken by phone Sunday. “The two leaders agreed that it was critically important to make every effort to return to a path that will allow Greece to resume reforms and growth within the eurozone,’’ the White House statement said.

But the European Central Bank, for its part, declined on Sunday to raise the limit on its emergency funding for Greek banks — a level currently said by banking officials and analysts to be around 89 billion euros, or about $100 billion — even though businesses and consumers have withdrawn billions of euros in recent weeks.

That rate of withdrawals appeared to increase over the weekend, as long lines formed at A.T.M.s around the country, threatening a bank run that the Greek government could try to avoid by imposing capital controls. But at the same time, the European Central Bank did not cut off support entirely, giving the Greek government some extra flexibility in the coming days.

Greece’s own central banker, Yannis Stournaras, said in a statement after the European Central Bank decision on Sunday that the Greek central bank would “take all measures necessary to ensure financial stability for Greek citizens in these difficult circumstances.”

Before negotiations broke off on Saturday between Athens and its creditors, the Tsipras government had been hoping to reach terms that would free up a €7.2 billion allotment of bailout money that the country needs to meet its short-term debt obligations.

Because European officials said on Saturday that Greece’s €240 billion bailout program would not be extended, the big question had been whether the central bank’s president, Mario Draghi, would continue financing the country’s depleted banks.

Guidelines of the European Central Bank dictate that it can keep supporting troubled banks as long as there is a possibility that the country in question will come to terms with its creditors on a bailout — as was the case with Cyprus.

If Athens and its creditors do not resume talks before Tuesday, the promise of European support for Greece may no longer be on the table. But the European Commission, the executive arm of the European Union and a key broker in the debt talks, seemed on Sunday to reach out to the Greek people, unexpectedly publishing the offer made to Greece before Mr. Tsipras ended the negotiations and announced a national referendum.

The publication was designed to show the lengths to which the creditors, including the I.M.F. and the European Central Bank, had gone to satisfy Athens’s demands for a deal that avoided hurting ordinary Greeks, said one European Union official with direct knowledge of the decision to publish the offer. The official spoke on the condition of anonymity because the institutions had not ruled out a resumption of talks with Mr. Tsipras on the sensitive issue of extending the bailout.

“This is a last bridge we are building for them,” said the official. The goal of publishing the document was also to pressure “Mr. Tsipras to change course and choose to mount a ‘yes’ campaign” in the upcoming referendum, the official said.

The official acknowledged there was a slim chance that Mr. Tsipras would accede to the terms so soon after abandoning the negotiations. But if Mr. Tsipras did change course, that could lead to a meeting of leaders of the eurozone member states on Monday night to try one more time to reach a deal before the expiration of the bailout.

On Saturday, amid intense discussions between Greece and its creditors, officials representing the I.M.F., to which Greece owes €1.6 billion on Tuesday, were trying to persuade European leaders and Mr. Draghi to keep the bank emergency assistance flowing. And on Sunday, the head of the I.M.F., Christine Lagarde, waved an olive branch toward Greece.

In a statement, Ms. Lagarde expressed her “disappointment’’ in the “inconclusive outcome of recent discussions on Greece in Brussels.’’

“I shared my disappointment and underscored our commitment to continue to engage with the Greek authorities,” she said, adding that the I.M.F. would ‘‘continue to carefully monitor developments in Greece and other countries in the vicinity and stands ready to provide assistance as needed.’’

Early Sunday, the Greek Parliament approved Mr. Tsipras’s request for a public referendum on the proposal offer by Greece’s creditors, with the vote to be held next Sunday. Mr. Tsipras and other Greek officials had asked European officials and Mr. Draghi to keep the central bank assistance in place until the vote.

The European Central Bank’s decision on Sunday to cap the emergency loan program, as opposed to canceling it, “allows the Greek banks to remain in a sort of coma – not functioning but not dead,” said Karl Whelan, an economics professor at University College in Dublin. That way, he said, the Greek financial system might be revived if at some later point Greece secures a deal with its creditors.

Raoul Ruparel, an economist and co-director of Open Europe, a London-based research group, said the rupture between Greece and its creditors on Saturday was unlikely to mean a definitive end to negotiations, instead becoming “merely a prelude” to yet more talks in a week or so after Greece holds its referendum.

“I think we are just getting started on this merry-go-round,” Mr. Ruparel said, predicting that Greek voters would probably vote to endorse proposals put forward by creditors and rejected by the Tsipras government. “We would then be back where we started, only in a worse situation,” he added. Because the current program will have expired by then, Greece and its creditors would need to negotiate a new bailout — most likely a short-term deal — in an atmosphere poisoned by even deeper distrust than before.

“The whole thing is absolute nightmare,” Mr. Ruparel said. ‘‘I have been following this saga for five years, and it is depressingly tedious.”

Andrew Higgins and James Kanter contributed reporting from Brussels.