BRUSSELS, Kingdom of Belgium. The European Central Bank says it not increasing its emergency funding for Greek banks, amid fears that Greece may default on its debts on Tuesday.
The decision not to raise the cap on aid to Greece increases the likelihood of bank closures and restrictions on cash withdrawals, analysts say.
That in turn could eventually result in Greece leaving the euro.
The ECB said that it stood ready to review the decision and would work closely with the Bank of Greece.
The current ceiling for the ECB’s emergency funding – Emergency Liquidity Assistance (ELA) – is €89bn (£63bn). It is not clear if all that money has been disbursed.
Those funds are used by banks to provide cash to depositors who want their money back.
The ECB statement said it stood ready to reconsider its decision and would “take all measures necessary to ensure financial stability for Greek citizens in these difficult circumstances”.
The ELA decision may result in Greek banks closing on Monday to prevent a run ahead of the imposition of capital controls, BBC economics editor Robert Peston says,
That would be a significant step towards Greece leaving the euro, though it would not make it inevitable, he says.
‘Dark hour for Europe’
The ECB’s move comes after Eurozone finance ministers on Saturday refused a Greek request to extend Greece’s current bailout.
The bailout expires on Tuesday, the same day that Greece has to make a payment of €1.5bn (£1.1bn) to the International Monetary Fund (IMF). Without new funds, Greece risk defaulting.
Greece and its creditors had been locked in negotiations over a new bailout on Friday when the Greek government broke off talks to call a surprise referendum for 5 July over whether to accept the terms it was being offered. It described the international offer as “not viable”.
It then asked for an extension of its current deal until after the vote was completed.
Earlier on Sunday, Greek Finance Minister Yanis Varoufakis told the BBC that the prospect of Greece’s creditors ending their financial support was “appalling”.
“It is a dark hour for Europe,” he said.
“Nevertheless… we have a clear conscience. We know that we have bent over backwards to accommodate the institutions, the troika [the European Commission, ECB and IMF], our European partners, and they have not come to the party, they have not met us half way – not even a quarter of the way.”
People standing in the queues for the cashpoint are heatedly debating politics. That’s all you hear them talking about. The disagreements climax, the talking turns into shouting and now insults are being thrown – they are calling each other ignorant, naive, foolish and suicidal.
All discussions seem to lead to the question: “So who did you vote for in January?” Those who supported Syriza defend it by arguing that at least someone is standing up for the country, but they are attacked by others as responsible for the bank run.
“They took too much risk” is the feeling among many people.
Obviously, they are also discussing the referendum. Older people realise that a Yes at the referendum means that pension schemes will need to be reformed.
I even saw two people depositing money, claiming this was the conscientious thing to do. One of them tried to convince others not to withdraw their cash.
Credit: BBC
