World markets tumbled on Monday as Greece shut its banks and imposed capital controls to halt a panic-driven run on ATMs, and confirmed it would not repay its loan tranche of 1.6 billion euros ($1.77 billion) to the International Monetary Fund (IMF) before the June 30 deadline.
Prime Minister Alexis Tsipras, who blindsided creditors by calling a referendum on the austerity cuts in the aid package proposed by creditors, appeared on television on Sunday night to announce capital controls to prevent banks from collapsing.
“Any difficulties must be dealt with calmness. The more calm we are, the sooner we will get over this situation,” Tsipras had said.
Their controls capped a dramatic weekend for Greece that has pushed the country closer to an exit from the euro currency block. France’s CAC-40 stock index was down 3.6% at 4,877, while Germany’s DAX fell 3.5% to 11,088, as investors feared a ‘Grexit’.
Asian markets also reacted negatively, with Tokyo ending 2.9% lower, Sydney shedding 2.3% and Seoul dropping 1.4%. Hong Kong tumbled 2.6%, while Shanghai ended down 3.3%.
The Athens stock market has been shut until July 7.
In a ray of hope, creditors left the door open for a last-ditch debt deal to try and avert a ‘Grexit’, which would raise serious questions about the future of the European Union. German Chancellor Angela Merkel warned that “if euro fails, Europe fails”.
Athens issued a decree to close banks until July 6 — the day after a referendum on creditors’ bailout proposals — with a 60-euro ($67) limit on cashpoint withdrawals.
Foreign tourists, a vital engine of the Greek economy, will be exempt. “The coast is not clear,” said George Goncalves, head of US interest rates strategy at Nomura Securities International in New York. “There is still a belief there’s a solution (for Greece) even though I think it’s misplaced.”
Despite the high drama, Berenberg Bank chief economist Holger Schmieding said it does not constitute an unexpected, uncontrollable and history-altering “black swan moment”. “The euro zone has spent the last four years strengthening its defences against contagion risks, and has had ample reason over the last few weeks to ponder ‘what if’ scenarios,” Schmieding said.
US stocks extended their losses in heavy trading on Monday, adding to a global selloff, after a collapse in Greek bailout talks intensified fears that the country could be the first to exit the euro zone.