Greek Tragedy: Banks Closed, Economy in Chaos

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Athens: Greece announced early on Monday it will shut banks for a week and impose capital controls, pleading for calm after anxious citizens emptied cash machines in a dramatic escalation of the country’s debt crisis.

Banks will be closed until July 6 – the day after a referendum on bailout proposals – with a 60-euro ($65) limit on ATM withdrawals, but foreign tourists, a vital engine of the Greek economy, will be exempt from the restrictions, a decree published in the official government gazette said.

In the first market reaction to the growing risk of a Greek euro exit, the single currency tumbled in Asia on Monday morning. Stock markets also fell sharply, with Tokyo, Sydney, Shanghai and Hong Kong each sinking more than 2 percent by Monday afternoon.

In India, the benchmark BSE sensex tanked over 535 points and the NSE nifty slid below the 8,300 mark in opening trade today on across-the-board selling by participants, PTI reported. Brokers said widespread selling by investors as well as funds, in line with a global sell-off on fears that Greece may default on a debt repayment and crash out of the euro zone, soured the mood.

The drastic measures to protect Greece’s banking system against the threat of mass panic came after the European Central Bank said it would not increase its financial support to Greek lenders, despite early signs of a chaotic bank run.

It capped a weekend of high drama that began with Prime Minister Alexis Tsipras’s unexpected call for a July 5 referendum on creditors’ latest reform proposals after bailout talks in Brussels collapsed.

In response, angry EU and IMF creditors rejected a request to extend the nation’s bailout beyond its June 30 expiry date, sparking fears Greece could default on a key debt payment to the IMF due the same day and possibly crash out of the eurozone.

Uncertainty over how events will unfold in coming days prompted crowds to form long queues outside some ATMs in Greece, leaving many cash machines dry.

Keen to stave off panic, Tsipras assured Greeks their deposits were “totally safe”.With the Athens stock exchange closed on Monday, other global markets were expected to follow Asia’s lead in what is set to be a highly volatile day of trade as investors return to their desks to find Greece hurtling towards default.

The move further raised the stakes in Greece’s festering debt crisis after five months of tough bailout talks culminated on Friday night with Tsipras’s shock call for a referendum on creditors’ latest cash-for-reforms offer.

Unless creditors heed Tsipras’s renewed request for a bailout extension, Greece’s rescue plan will formally expire on Tuesday. This will almost certainly mean Greece will default on more than 1.5 billion euros ($1.7 billion) due to the IMF that same day.

Since Friday night alone, 1.3 billion euros ($1.45 billion) have been withdrawn from the Greek banking system, according to the head of the bank workers’ union Stavros Koukos.

French Prime Minister Manuel Valls warned of a “real risk” of Greece leaving the eurozone if Greeks vote against the EU’s bailout proposals in the planned referendum.

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