SCAN THE ECO – Greece has introduced capital controls and organizes a referendum on Sunday. The financial world is concerned, the major European leaders react, the euro is again in full existential crisis … The detailed update on the Greek case.
No more living in Greece a week of all hazards. Athens has nothing less this weekend announced a referendum on the proposals of its creditors and capital controls! Banks will be closed until July 7 and limited cash withdrawals, the queues at cash dispensers and petrol stations get longer, the entire planet tremble finance, European leaders react and rumble. Welcome in unfamiliar territory!
To understand why this week will be decisive for the history of the euro area, make a clear and detailed update on what’s going on.
• Why Greece has introduced capital controls?
The Greeks massively withdraw their money this weekend Copyright: Thanassis Stavrakis / AP
Greece explained that this decision was the direct result of the creditors’ refusal to extend the financial assistance plan in the country beyond June 30 Then, in the wake of the decision of the ECB not to raise the ceiling granted emergency liquidity to banks in the peninsula.
But Greek banks, which were crushed by the crisis the debt exploded in late 2009, are in ground today. They fall out of money, when in front, the Greeks withdraw their funds massively (since 2010, 80 billion euros have escaped the country), especially for six months with the arrival of the radical left Alexis Tsipras to power. And more recent days: the Greeks flocked to distributors to withdraw cash this weekend, after the announcement as amazing than not a referendum on July 5 on the proposals of the creditors of Greece. We call this movement a “bank run”.
Greek banks found themselves in severe liquidity crisis, and a few hours of insolvency. But widespread bank failure results in a pending bankruptcy of the state. It was therefore necessary to plug the leaks banking, establishing what is called a “capital controls”.
• What is capital controls, and does what it’s meant to last?
The Greek Central Bank decided “activate the temporary closures of banks and limiting bank withdrawals” to 60 euros per day per card. In principle, capital controls may only be temporary, according to section 65-B of the Treaty of the European Union. It is allowed only in exceptional cases, namely the time the acute episode of the crisis passes, the banking sector is stabilized. It does not aim to continue, because in a monetary union, the Central Bank must address the lack of liquidity … if banks are solvent.
What is not certain to be the case a long time in Greece, since the ECB must normally stop its assistance to banks if Athens fails to meet its repayments. Same also for the EFSF, this European fund to help countries in the troubled eurozone, which must also normally cut valves in case of non-compliance with credit payments.
• Greece will she be in default tomorrow, Tuesday, June 30?
It is likely that Greece can not repay the famous $ 1.5 billion euros to the IMF tomorrow, Tuesday, June 30 But the country will still not be officially declared in default. The IMF should grant him -he has the right- still a reprieve last month to try to recover. But the situation would be much worse if Greece does not pay its due date of 3.5 billion euros, this time to the ECB, on 20 July.
To see all maturities repayments of Greece to its various creditors, surf the infographic below:
• Y he has already had capital controls in the euro zone?
There are two years, Cyprus had had to implement capital controls. In late March 2013, the banks had closed twelve days. The state had taxed directly over € 100,000 accounts. Then the control was relaxed in progressively, and it only just ended in April. At first, the government of Cyprus communicated to the introduction of controls for a single month.
• What are the direct consequences of capital controls?
Financial markets worldwide are affected by the Greek crisis Copyright: THOMAS PETER / REUTERS
A capital controls is a Such a bad sign that translates immediately by a reaction to the financial world. Greece is a small country but concern is global, because the viability of the euro zone is in question.
But on Monday morning, the major European indexes do not collapse. The CAC 40 was down 3%, gold (safe haven) rises slightly (1180 dollars per ounce) and the euro resists surprisingly well (-0.8%), above $ 1.10. Long-term interest rates, those that borrow States, is necessarily tend. Especially in the countries of southern Europe, the most fragile and the most “contaminable” the 10-year rate in Spain rose to 2.720% against 2.150% Friday. That of Italy rose to 2.598% (2.110% against). The rate at two years in Greece, they explode … 13 points to 32.1%.
In the longer term, capital controls always a recessive effect, especially in so dependent economy tickets!
• What will bring the referendum?
It is not yet the unclear! But the question should be on the creditors’ agreement proposal of Greece.
• What are the main proposals of creditors for an agreement
– The creditors want Greece liberates primary surplus 1% of GDP in 2015 from 2% in 2016, 3% in 2017 and 3.5% in 2018. The primary balance is the government budget, excluding debt interest and financial asset income. Thereupon Greece agrees.
– Second bullet negotiations: VAT . Objective: return 1% of GDP in tax revenues. Creditors are now calling rates to 6% for drugs, 13% for electricity, water and food and 23% for hotels and restaurants. For an introduction on 1 July. Too early to Greek government
-. Finally, the third sinews of war, pension . Reform should limit public spending 1% of GDP. Its implementation should also take place on 1 July. Too early for the Greek government., Who wishes an application in the fall.
• If Greece said “no” Sunday is that necessarily the end of the euro for Greece ?
The link is not automatic. The real problem is the financial infusion that the ECB grants to Greek banks. If the ECB stopped or braked its emergency plan (called ELA) to Greek banks became insolvent, Athens would soon default and would be forced to print drachmas to lend to banks and to pay its civil servants and pensioners. The drachma and the euro may well coexist time, and the country would try to recover to resume as soon as the path of the euro. But the return is very difficult.
This scenario, however, is not very possible because the ECB would be exceeding its mandate and its credibility at stake, since the main role of the ECB is precisely to ensure financial stability eurozone. Mario Draghi, the head of the ECB, is found in spite of himself in a very uncomfortable position where he must decide. And though he decides, he will be criticized.
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