Banks in Greece remained closed today as the country finally ran out of credit this week. The European Central Bank had attempted to negotiate for weeks with Greece’s new socialist government to get the country onto a rational payment schedule, while Greece balked at establishing a more austere budgetary and fiscal policy that would allow for repayment. Greeks staged a slow-motion bank run over the weekend — more like an ATM run to get as much cash as possible — which forced banks to remain closed this morning to protect cash reserves.
Needless to say, none of this makes the markets very chipper, as CNN reports:
The crisis in Greece now has the full attention of investors around the world — and they don’t like what they see.
European markets were hammered early Monday morning, with both the German DAX and French CAC opening 4.4% lower. Portugal’s stock market was down nearly 6%, while Britain’s FTSE fared better, shedding only 2%. Those losses were trimmed by late morning.
European bank stocks were particularly hard hit. Spain’s Banco Santander (BCDRF) gave up 5.7% in early trading, while French bank Credit Agricole (CRARF) lost 6.7%.
“While Greece is the weakest member of the euro and might not have the largest economy by any means, the global implications to Greece failing to repay its debts remain largely unknown and this is why worldwide indices will continue facing downside pressures,” noted FXTM chief market analyst Jameel Ahmad.
All 18 members of the Eurozone apart from Greece voted against any more extensions for their debt repayment. The government of Alexis Tsipiras appears to have worn out its welcome rather quickly. That means that Greek banks have had to restrict withdrawals to only 60 euro per person when they do open up, as Greek banks simply don’t have the funds to service their customers any longer now that the ECB has stopped bailing them out. That will come as a big shock to the Greeks, who have become less than enamored with the new Prime Minister they put into power to defy the EU:
Greeks such as this woman can complain about Tsipiras’ “ego and ambition,” but that’s why they voted for him in the first place. He told the Greeks what they wanted to hear — that austerity policies were unnecessary and that Greece didn’t need to worry about putting themselves on sound fiscal footing to please the rest of the EU. A month ago, Tsipiras toured the continent meeting with leftist groups telling them that he wanted Greece to remain in the Eurozone but without any austerity requirements. The European leaders that he snubbed on his tour warned at the same time that the situation was more grave than Tsipiras understood, and that their patience had run out. Maybe he should have listened.
Now, even the pensions might not get paid, let alone allowing depositors access to their accounts:
Banks and ATM machines were shut throughout Greece on Monday, the first day of capital controls announced by the government in a dramatic twist in the country’s five-year financial saga.
Despite the closures, pensioners lined up just after dawn at bank branches hoping they would be able to receive their pensions, which were due to be paid Monday. The finance ministry said the manner in which pensions would be disbursed would be announced later in the afternoon.
The bank closures came after Greeks rushed to ATMs over the weekend to withdraw money following Prime Minister Alexis Tsipras’ surprise call for a referendum on creditor proposals for the reforms Greece should take to gain access to blocked bailout funds.
The referendum has been set for Sunday, and the government has been advocating Greeks vote against the proposals.
Tsipiras wants to spread the blame, but it will literally be too late for that. By the time of the July 5 referendum, the ECB’s proposal will already have expired, and presumably with it Tsipiras’ political career. To paraphrase Margaret Thatcher, Tsipiras became only the latest in a series of socialist leaders about to discover what happens when one runs out of other people’s money. Don’t expect it to end pretty for Tsipiras, or the Greeks he led into a fantasy dead-end.