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Bank run beckons as creditors reject Greek bailout extension request

Greek finance minister Yanis Varoufakis arrives for Saturday's Eurogroup meeting.Greek finance minister Yanis Varoufakis arrives for Saturday's Eurogroup meeting.
Greek finance minister Yanis Varoufakis arrives for Saturday's Eurogroup meeting.Courtesy of Christos DOGAS

 

The referendum called by Greek Prime Minister Alexis Tsipras is set to take place against a background of economic chaos, after Eurozone finance ministers rejected the country’s request to extend support for another month and started to plan for a default next week.

Jeroen Dijsselbloem, the Dutchman who chairs the ‘Eurogroup’ of the currency union’s 19 finance ministers, told a press conference (in an unsteady voice) that their final proposal, which would give Athens access to €15.5 billion ($17 billion) over the next five months in return to tax raises, pension cuts and other reforms, would expire Tuesday night.

The press conference came after Greece’s Yanis Varoufakis left the meeting, leaving the other 18 finance ministers to regroup and discuss the consequences of default without him. Dijsselbloem said the group was “determined…to maintain the strength and credibility of the Eurozone.”

“Plan B is fast becoming Plan A,” Finland’s Alexander Stubb said as he arrived for the meeting earlier.

Without a bailout agreement in place, it will be practically impossible for the European Central Bank to keep supporting the Greek banking system with emergency credit. Long lines have started to form at ATMs across Greece Saturday–including, notably, at the ATMs inside the Greek parliament–as depositors scramble to get their money out while they still can. Bloomberg quoted ‘banking officials in Athens’ as saying they expected banknote shortages as early as Saturday evening.

Dijsselbloem declined to answer a question on how to keep the banks open, saying it was a matter for the European Central Bank. Mario Draghi, the ECB President who is also attending the meeting in Brussels, has so far not commented in public, while his press service restricted itself to one ominous tweet.

Tsipras had decided overnight on Saturday to call a referendum on an extended bailout package that his government felt it couldn’t accept. Parliament is expected to confirm the referendum in a vote later tonight in Athens.

The trouble is–even if the vote takes place, it will be on the basis of an offer that is no longer on the table, Dijsselbloem said. He acknowledged that the Greek people could vote ‘no’ to the package in anticipation of better terms in future, but said that “in the in-between period…the situation in Greece will deteriorate very rapidly.

Twisting the knife, Dijsselbloem said that the rest of the Eurogroup wouldn’t trust the current Greek government’s pledge to implement an agreement even if voters told it to at the referendum.

“If a government has spoken so negatively about the package…then there is little credibility that even after a ‘yes’ they will implement it in a right and conscientious way,” Dijsselbloem said.

There had been widespread condemnation and dismay from the rest of the group earlier as they arrived for the meeting, underlining how much Athens’ overt brinkmanship and unpredictability has undermined trust in the group.

Malta’s Chris Scicluna said the decision to hold a referendum “should have been taken much earlier before, when it was obvious that the main stumbling block was not the individual issues, but the mandate of the government itself.”

He noted that there had been no prior warning of a referendum over the course of a fraught week of talks (although Tsipras had more than once raised the prospect weeks earlier, and Schaeuble himself had welcomed it.)

The mood was summed up by Ireland’s finance minister Michael Noonan: “I don’t know what the next week holds. It’s impossible to speculate. We’re heading into totally uncharted waters.”