Greece Will Shut Banks in Fallout From Debt Crisis

By JIM YARDLEYJUNE 28, 2015

The New York Times

ATHENS — Prime Minister Alexis Tsipras announced Sunday night that Greece’s banks would be closed as of Monday, as the fallout from ruptured debt negotiations with the nation’s creditors began inflicting pain on ordinary people while raising alarm in Washington, Brussels and Berlin.

The emergency measures escalated the confused and unpredictable state of a crisis that some analysts say could ripple through global financial markets and undercut European unity. Most Asian markets opened lower on Monday.

With so much at stake, leaders in other capitals encouraged a continued search for a way to prevent Greece from being forced out of Europe’s currency union. Greece owes a large debt payment by the end of Tuesday, and has scheduled a referendum for next Sunday on whether to accept the terms of an offer from its creditors to release bailout aid it needs to meet its financial obligations.

Mr. Tsipras announced the emergency banking shutdown, which will also close the stock exchange, and imposed capital controls several hours after the European Central Bank said it would not expand an emergency loan program that had been propping up Greek banks for weeks. The banking system had neared insolvency after panicked account holders withdrew billions of euros, a pattern that continued over the weekend.

It is clearer than ever that this decision has no other goal than blackmailing the Greek people and obstructing the smooth democratic procedure of the referendum,” Mr. Tsipras said in a brief televised address.

Mr. Tsipras attributed the action to the unwillingness of the country’s creditors to extend the bailout program, set to end Tuesday, until next Sunday, so that Greece could hold its national referendum. The referendum was a surprise move by Mr. Tsipras, announced early Saturday, as he declared that voters should decide whether to accept the terms of the creditors’ latest aid proposal — terms he considers onerous.

Greece’s creditors — the other 18 eurozone countries, the European Central Bank and the International Monetary Fund — in effect cut off negotiations with Mr. Tsipras after he called for the referendum, raising concerns that Greece would default on its debt and potentially seek to solve its financial problems by abandoning the euro.

But on Sunday, international leaders appeared to be seeking a way to calm the situation and explore the potential for common ground with the Greek government.

President Obama and Chancellor Angela Merkel of Germany spoke by phone on Sunday and “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,” said the White House. Ms. Merkel is expected to make a public statement on Monday in Berlin.

Christine Lagarde, managing director of the International Monetary Fund, who has at times been sharply critical of Greece’s negotiating stance, released a softer statement, declaring her “commitment to continue to engage with the Greek authorities.”

Greece must make a 1.6 billion euro debt payment to the I.M.F. on Tuesday or risk falling into default.

Before this weekend, the four-month negotiations focused on getting the Greek side to agree to fiscal overhauls, tax increases and pension cuts in exchange for creditors releasing a €7.2 billion bailout allotment that Greece needs to meet its short-term debt obligations, equivalent to about $8.1 billion. Mr. Tsipras had consistently called for a broader, comprehensive deal that would liberate Greece from the economics of austerity. Attention will now likely shift to Brussels and Berlin.

In Brussels, the European Commission made its own unexpected moves on Sunday. Jean-Claude Juncker, the commission president, released a statement suggesting that creditors had been willing to discuss Greece’s debt load, a key demand of the Tsipras government. But more surprisingly, the commission published details of the offer made to Greece, a move intended to show that creditors had gone to great lengths to satisfy Greek demands, one European Union official said.

“This is a last bridge we are building for them,” the official said about the decision to publish the terms of proposal. The goal was to pressure Mr. Tsipras to “change course” and encourage voters to choose “yes” in the coming referendum, the official said, while acknowledging that the chances for such a switch were slim.

Perhaps the key figure in finding a compromise, assuming there is still time to do so, is Ms. Merkel, the most powerful political figure in Europe. She remained silent on Sunday, with officials saying that Wolfgang Schäuble, the German finance minister, spoke for the government in Brussels on Saturday. Following the collapse of talks, the finance minister declared that Germany and the other eurozone nations would like to continue to hold talks, but blamed the Greeks for declaring the discussions a failure.

But Mr. Schäuble also indicated readiness to “do everything to prevent every possible threat of contagion” of the situation, should Greece fail to reach a deal with its creditors, reflecting growing frustration in Berlin with the Athens government.

Norbert Röttgen, a senior member of Ms. Merkel’s party who is responsible for foreign affairs, emphasized the wider geopolitical implications of what he called a “vagabond Greek government,” which could say no to the next round of European sanctions against Russia. He warned that after five years of bailouts, “it cannot just collapse over a week.”

The immediate question in Greece revolved around the specifics of the emergency actions announced by Mr. Tsipras. He did not mention the stock market in his public address, but a senior official confirmed it would close.

The prime minister indicated that restrictions would be placed on A.T.M. withdrawals and money transfers, but he provided no details. A legislative decree said that banks would be closed through July 6 and that the cap on daily cash machine withdrawals would be €60. That would not apply to tourists using cards issued in their home countries.

Such a small cash withdrawal limit would highlight the dire condition of the Greek banking system. Cyprus avoided a banking collapse in 2013 by taking similar steps, though the daily withdrawal limit was €300. The Cypriot government also acted in concert with other European governments as part of a new bailout program, while the Greek actions are the result of a breakdown in bailout talks.

The European Central Bank, in refusing to expand emergency funds to Greek banks, did not cut off support entirely, which will provide the government some flexibility in the coming days.

The central bank’s decision 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 Greece secures a deal with its creditors.

And several analysts still predicted that despite the confrontation and fireworks, the two sides might well return to the table. Even as Mr. Tsipras and other members of his government are imploring people to vote “no” in the referendum and reject the creditors’ proposal, some experts predict that Greek voters, equating such a vote with leaving the euro system, will vote “yes.”

Raoul Ruparel, an economist and co-director of Open Europe, a London-based research group, said the breakdown in negotiations was “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. “We would then be back where we started, only in a worse situation.”

He predicted that Mr. Tsipras’s government and the creditors would need to negotiate an entirely new, and probably short-term, bailout in an atmosphere poisoned by even deeper distrust than before.

“The whole thing is an absolute nightmare,” he said.

Reporting was contributed by Landon Thomas Jr., and Niki Kitsantonis from Athens; Andrew Higgins and James Kanter from Brussels; Rich Dirks from Hong Kong; and Alison Smale and Melissa Eddy from Berlin.