The problem with Greek capital controls. What it means for ATMs and credit cards
Will Greek banks open this week?
No. The government has backed down and announced an enforced week long bank holiday and limits on ATM cash withdrawals. This will allow them to keep the financial system afloat before a referendum on its bail-out deal is held on July 5.
How bad are the banks?
Pretty bad. Deposits fell to an 11-year low last month and have lost nearly 15pc of their total value since November. Most wealthy Greeks pulled their money out as soon as the Leftist Syriza government came to power in late January, promising to end austerity.
But with a June 30 bail-out expiry date looming, more and more ordinary people have started pulling their savings out for fear of a full blown banking collapse.
What did the European Central Bank do?
The ECB has been making daily decision on whether they should increase the emergency funds they are drip feeding to keep banks alive. Yesterday, they decided they would freeze those funds at the current level of around €89bn.
Have they pulled the plug?
No, but by refusing to raise the ceiling they have tightened the leash at a time when people are queuing in their hundreds to take their money out of the banks.
The ECB said it stands ready to reconsider its decision, so could well decide to provide more cash. But one reason that is unlikely is that they want to force the government to implement capital controls to stem the flow of cash rushing out of the banks.
What are capital controls?
They can include any number of measures to keep money in the financial system, such as forced bank holidays, imposing a surcharge on transactions, and stopping people from making big withdrawals.
Have they happened before?
Only once in the history of the eurozone. That was back in Cyprus in 2013 during its banking crisis.
Capital controls restrict the free movement of capital, which is one of the fundamental rights of the European Union. But, this can be waived in the interests of national emergency. Crucially, a member state government has to request them however – they can’t be imposed unilaterally by European authorities.
What happens if the banks do go bust?
If the banking system is allowed to go under, the rest of the eurozone has liabilities topping €110bn to Greek banks.Many analysts warn that the member states and taxpayers of the other 18 countries will be forced to pick up the cheque.
Will capital controls change the outcome of the referendum?
It’s tricky to say. One the one hand, if Greeks think the Europeans are cutting them off, that could push them to vote ‘No’ and reject the bail-out deal. On the other hand, the prospect of life under capital controls could scare many into voting Yes, for fear of things to come should they leave the euro.