Greece closed its banks and imposed capital controls on Sunday to check the growing strains on its crippled financial system, bringing the prospect of being forced out of the euro into plain sight.
After bailout talks between the leftwing government and foreign lenders broke down at the weekend, the European Central Bank froze vital funding support to Greece’s banks, leaving Athens with little choice but to shut down the system to keep the banks from collapsing.
Banks will be closed and the stock market shut all week, and there will be a daily 60 euro limit on cash withdrawals from cash machines, which will reopen on Tuesday. Capital controls are likely to last for many months at least.
“The more calmly we deal with difficulties, the sooner we can overcome them and the milder their consequences will be,” a sombre-looking Prime Minister Alexis Tsipras said in a televised address. He promised bank deposits would be safe and salaries paid.
Even as Mr Tsipras spoke late on Sunday, lines formed at petrol stations and the dwindling number of bank machines still holding cash, highlighting the scale of the disaster facing Greeks, who have endured more than six years of economic decline.
The failure to reach a deal with creditors leaves Greece set to default on 1.6bn euros of loans from the International Monetary Fund that fall due on Tuesday. Athens must also repay billions of euros to the European Central Bank in the coming months.
The impending default on the IMF loans leaves Greece sliding towards an exit from the euro, with unforeseeable consequences for Europe’s common currency project. It also carries broad implications for the global financial system.
The euro fell almost 2 per cent against the dollar in early Monday trade and share prices tumbled, while safe-haven US government debt futures rallied.
“We are in uncharted territory, and European equities, like all markets, will have a difficult time processing this,” said Deutsche Bank managing director Nick Lawson.