World markets tumbled Monday as Greece shut its banks and imposed capital controls to halt a panic-driven run on ATMs, a day before Athens risked defaulting and possibly crashing out of the euro. But in a narrow ray of hope, creditors left the door open for a last-ditch debt deal to try and avert a Greek eurozone exit which would raise serious questions about the future of the EU.
Calling for a compromise, German Chancellor Angela Merkel warned that “if euro fails, Europe fails”. Global stocks fell, with Frankfurt and Paris losing more than three percent after a slump in Asia, as investors feared a ‘Grexit’. The euro steadied after hitting a one-month low under $1.10 on Sunday.
Athens issued a decree to close banks until July 6 — the day after a referendum on creditors’ bailout proposals — with a 60-euro ($65) limit on cashpoint withdrawals. Foreign tourists, a vital engine of the Greek economy, will be exempt. However, the drastic measures — designed to protect the banking system against the threat of mass panic – sent Greeks rushing to withdraw their daily allowance.
Jittery housewives, shoppers and business owners formed long lines at cash machines across Greece on a day dubbed “Black Monday”.
With negotiations halted, the Greek situation has rapidly moved to the worst-case scenario and investors who jumped to the conclusion last week that a deal was done will be suffering significant losses this morning,” said strategist Alastair George at Edison Investment Research.
The Frankfurt-based ECB’s governing council on Sunday and left unchanged its emergency liquidity assistance — keeping open its life support for Greek banks and, by extension, the Greek state. But it pledged no extra cash for banks. The move further raised the stakes in Greece’s festering debt crisis after five months of tough bailout talks culminated on Friday night with Tsipras’s shock call for a referendum.
Unless creditors heed Tsipras’s renewed request for a bailout extension, Greece’s rescue plan will formally expire Tuesday. This will almost certainly mean Greece will default on more than 1.5 billion euros ($1.7 billion) due to the IMF that same day. The weekend’s rapid-fire events in the Greek saga set off a flurry of diplomatic activity.
In Berlin, Merkel is still prepared to hold talks with Greek Prime Minister Alexis Tsipras despite the breakdown in debt negotiations at the weekend, her spokesman said. French President Francois Hollande added that Paris was “always available” for negotiations with Athens — and that a bailout deal remained possible.
In Japan, top government spokesman Yoshihide Suga said G7 finance ministers had held consultations over the weekend, calling the breakdown of talks “extremely regrettable”. A banking source in Greece said only 40 percent of cash machines had money in them on Sunday.
Tsipras, whose Syriza party came to power in January on an anti-austerity platform, has advised voters against backing a deal he said spelled further “humiliation” for a country that has endured five years of recession, turmoil and skyrocketing unemployment.