Euro, stocks slide as Greece edges closer to default

29 Jun 2015 | Author: | No comments yet »

Euro, stocks retreat on prospect of Greek default.

Greece shut its banks and imposed capital controls in a dead-of-night announcement designed to avert the collapse of its financial system as the country edges closer to an exit from the euro. The legitimacy or otherwise of Sunday’s vote on a failed Greek bailout proposal has divided constitutional experts and left bureaucrats rushing to deal with the logistics of holding the country’s first plebiscite in more than 40 years.ATHENS — Greek leaders planned to shutter their banks for six business days starting Monday and impose strict limits on ATM withdrawals amid rising global concerns about the nation’s economic future.

BEIJING — The euro fell and share prices retreated across Asia Monday, after Greece announced it was shuttering banks and looked set to default on a debt repayment this week. The measures, which were announced just before 3 am in Athens, limit daily cash withdrawals to €60 and ban payments and transfers abroad, according to the decree. Some Greek voters are puzzled and confused. “Greece is holding a referendum on a proposal that no longer exists for a bad programme that by then will have expired,” said Yannos, a business consultant who declined to give his second name. “It doesn’t make sense.” Tsipras has urged a No vote to endorse his left-wing government’s rejection of “blackmail” by the country’s creditors in seeking to apply further harsh austerity measures in return for a €15.3 billion bailout. Sunday’s decision to declare a bank holiday was a signal that Greece’s five-year battle to stay in the shared euro currency may swiftly be coming to an end, as leaders elsewhere urged steps to find a way to avoid that. The bank controls follow the breakdown of aid talks with international creditors late Friday and a European Central Bank decision to freeze its lifeline to Greek banks.

One opinion poll, conducted before the referendum was announced and published at the weekend, suggested that 57 per cent of Greeks were prepared to put up with more economic pain as the price of rescuing the economy and staying in the euro. ATMs in Athens were running out of money, and tensions were running high as Greeks stood in line for hours to scrape together cash for basic supplies. The weekend developments marked an abrupt turn from last week, when markets rallied on hopes a deal between Mr Tsipras’s anti-austerity government and creditors – the ECB, European Commission and International Monetary Fund – was at hand. Lines mounted at gas stations as worried residents topped off their tanks for what could be a protracted period of time in a cashless nation. “The decision not to prolong financial aid to Greece is offensive, and it’s a disgrace for Europe in general,” Prime Minister Alexis Tsipras said in a brief Sunday evening address broadcast across Greek television networks.

The optimism vanished after midnight on Friday with Mr Tsipras’s call for the referendum just days before the June 30th expiry of the current bailout and a $1.7 billion payment due to the IMF. He said he was seeking an extended and enlarged bailout from European lenders that would carry the country past Tuesday, when it will otherwise face default. The ECB on Sunday froze the ceiling on Emergency Liquidity Assistance to Greek lenders at just below €89 billion, refusing for the first time this year to maintain a buffer as deposits sank.

Aris Hatzis, an Athens university professor and political commentator, argued that Tsipras miscalculated by rejecting the latest bailout offer on Friday at a critical stage of the negotiations, with creditors poised to make concessions that could have swung his ruling Syriza party behind the deal. “After weeks of intense pressure from both the creditors and his own party, he suddenly went over the edge . . . Japan’s Nikkei was down 2 percent in early afternoon trade in Tokyo, the MSCI Asia Pacific Index, a broad measure of Asian markets outside Japan, was down 1 percent, and S&P500 futures fell 1.3 percent.

Tsipras said that the threat by European Union leaders to hold Greece to the deadline and not extend further assistance amounts to “blackmail.” But he gave no concrete indications that he had made any concessions that would change their minds. China initially bucked the trend, opening stronger after an interest rate cut over the weekend, but then slid dramatically, down 3.75 percent by late morning trade.

The disagreements are about the extent of the painful reforms it must make to continue receiving the rescue funds that keep the nation’s finances afloat. The Shanghai Composite Index also fell 7.4 percent on Friday, its single-worst day in seven years, and is now down more than 20 percent since its June 12 peak, in a correction to a massive year-long surge unconnected to events in Europe. But some investors appeared to still believe that a bailout agreement could still be reached. “Right now, the surprise is that the euro is not weaker,” Steven Englander, global head of G10 FX Strategy at CitiFX in New York told Reuters. “The logic may either be that the Greek government will come back to the negotiating table, or that it will not survive long, if ‘Yes’ prevails, contrary to their recommendation.” This year’s crisis in Greece has not spread to other “peripheral” European markets such as Italy, Spain and Portugal, with European banks having limited their exposure to Greece.

But it also remained possible that whenever they reopen, their deposits would no longer be denominated in euros but rather another currency whose value would quickly be worth far less. But the ECB also decided not to eliminate the emergency assistance altogether, a step that would have caused immediate bank failures and quickly cast Greece out of the euro zone. “The Bank of Greece, as a member of the eurosystem, will take all measures necessary to ensure financial stability for Greek citizens in these difficult circumstances,” Bank of Greece Gov. The closure sought to avoid dealing a grievous blow to Greek tourism, one of the few remaining supports to the country’s economy, by sparing foreign bank cards the withdrawal limits.

Top Greek cabinet officials have expressed sympathy for Russian President Vladimir Putin, and in the European Union’s consensus-driven decision-making system, even a single dissenting nation’s vote is enough to put an end to sanctions against Russia. Tsipras has been seeking a decision to unlock the final $8.1 billion installment of emergency funds to help pay for Greece’s short-term financial needs.

But with less than 48 hours before a default, IMF Managing Director Christine Lagarde on Sunday indicated that the organization remained willing to keep talking, keeping open a window of hope that a deal could be reached. Austrian Finance Minister Hans Jörg Schelling suggested in an interview with the Austrian daily Die Presse that Greece would have to leave the European Union altogether. ATMs across central Athens were empty Sunday evening, as worried Greeks pulled as much money as they could from their accounts ahead of an unpredictable week.

At the few ATMs that were still dispensing cash, long lines quickly formed. “Everybody was taken by surprise, and people started panicking,” said John Tzamaloukas, 35, who waited 90 minutes to reach the front of an ATM line in central Athens, only to have the machine run out shortly before his turn.

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