Debt burden, capital control, way ahead: All about Greece crisis

  • Agencies, Athens
  • Updated: Jun 30, 2015 12:15 IST

Greece has closed its banks and imposed capital controls 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 Left-wing 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 at least until July 6 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. Prime Minister Alexis Tsipras has promised the Greeks, who have endured more than six years of economic decline, that bank deposits would be safe and salaries paid.

Read: Debt crisis: Options for Greece as it heads to referendum

The failure to reach a deal with creditors leaves Greece set to default on 1.6 billion euros ($1.76 billion) of loans from the International Monetary Fund that fall due on Tuesday. 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.

Athens must also repay billions of euros to the European Central Bank in the coming months.

Here is all you need to know about the crisis:

Greece's debts

IMF: Greece was promised a total of 48.1 billion euros by the IMF, of which 16.3 billion was still to come by March 2016 if Athens successfully completed the second economic adjustment programme. It had serviced and repaid loans on time up to this month, when it used an obscure IMF provision to bundle together four payments totalling 1.6 billion euros for payment by the end of June. The older IMF loans carry an interest rate of 3.5%, higher than the euro zone rescue fund charges.

ECB: The ECB owns roughly 18 billion euros of Greek bonds, which would probably be worth a fraction of their face value should the country leave the euro zone, with 6.7 billion euros maturing in July and August.

Beyond a default on Greece's national debt, any exit of Greece from the euro zone would lumber the European Central Bank with a huge bill for lost credit. ECB president Mario Draghi recently said that Greek banks had tapped 118 billion euros of central bank liquidity.

That includes 89 billion in what is known as Emergency Liquidity Assistance (ELA). That remains the responsibility of the country's central bank but only if Greece stays in the euro. Were it to leave, the bill would rebound on other euro countries, including Germany.

In addition about 45 billion euros of banknotes in Greece represents another liability, being a claim that the wider Eurosystem of central banks would be obliged to honour.

Euro zone: Euro zone governments gave Greece 52.9 billion euros in bilateral loans under the first bailout agreed in 2010, known as the Greek Loan Facility. Under the second bailout agreed in 2012 Athens has so far received 141.8 billion euros from the euro zone's financial rescue fund. It had been due a further 1.8 billion euros by June 30 if it met conditions but barring major surprises that is off the table.

Of the biggest euro zone members, Germany's exposure for the two bailouts totals 57.23 billion euros, France's is 42.98 billion, Italy's is 37.76 billion and Spain's 25.1 billion. That is in addition to their contributions to the IMF loans, commensurate with their respective quotas in the global lender.

Giorgos, a 77-year-old pensioner from Athens, sits outside a branch of the National Bank of Greece as he waits along with dozens of other pensioners, hoping to get their pensions in Athens. (Reuters)

Measures adopted by Greek govt to tide over crisis

Banks will close until to July 6. All credit institutions in Greece, including branches of foreign banks, are affected. The finance minister may shorten or extend the bank holiday period.

ATMs will open from Monday afternoon. Daily cash withdrawals will be limited to 60 euros. The limit can be changed by the finance minister.

Payments via debit or credit cards to accounts within Greece and online banking transactions within Greece will be allowed but payments and transfers to accounts outside Greece are prohibited.

Cash withdrawals at ATMs with bank cards that have been issued by foreign banks will be allowed. Withdrawal limits may be set by the finance minister. All other transactions will not be permitted.

A special committee will approve banking transactions deemed necessary to safeguard a public or social interest, including medical
expenses or pharmaceutical imports.

Pension payments will be exempt from capital controls.

Interest surcharges on due payments will not be allowed during the bank holiday period.

Banks breaching the rules face fines of up to 10% of the amount of any transaction violating the control measures.

Blame game

After months of wrangling, Greece's exasperated European partners have put the blame for the crisis squarely on Prime Minister Tsipras' shoulders.

Many leading economists have voiced sympathy with the Greek government's argument that further cuts in spending risk choking off the growth that would give Greece some prospect of servicing debts worth nearly twice its annual national income.

However, in economic powerhouse Germany, other southern states that have endured austerity in return for EU cash and poor eastern countries with living standards much lower than Greece's, many voters and politicians have run out of patience.

German finance minister Wolfgang Schaeuble openly questioned the solvency of Greek banks, a key condition to qualify to receive such finance.

In Asia, policymakers were watching events closely, though the spillover effects appeared limited for now. Korea's finance ministry and central bank discussed the market reaction in meetings on Monday, while Japan's top government spokesperson Yoshihide Suga said the government was in close co-operation with the Bank of Japan over the turmoil.

A man reacts as people line up to withdraw cash from an ATM outside a Eurobank branch in Athens, Greece. (Reuters)

Political scenarios to pull Greece back from brink

President steps in

The president is a largely ceremonial role in Greece, but can step in case of a national emergency - by stepping down. If the president were to resign then a referendum would be suspended until a new president is elected, which requires the candidate win with three-fifths majority in parliament.

This option remains highly unlikely at the moment, and presidency officials have said Prokopis Pavlopoulos will not resign. But the former conservative politician, who normally stays clear of politics, was quoted by Greek newspaper Real News this month as saying that he would not be prepared to serve as president if the country left the euro.

Since the Syriza-led government does not have a three-fifths majority in parliament to elect a president in such an event, it would likely lead to new national elections, according to Greek constitutional expert Nikos Skoutaris, lecturer of EU law at the University of East Anglia Law School.

Low referendum turnout

Referendums are not legally binding in Greece, and are viewed as a 'consultative process'. A minimum turnout of 40% is required. Should it fail to pass muster, it will not be considered consultative, and simply be shelved.

Yes vote to bailout terms

Greece's government has said it will respect the outcome of the referendum even though it is urging Greeks to say 'no' to the bailout
proposal from creditors. But analysts say it would be politically almost impossible to implement a programme the government has so
strongly opposed and that in such an event Prime Minister Tsipras would likely resign and call new elections.

Asked if the government would resign if Greeks voted 'yes', energy minister Panagiotis Lafazanis - a senior minister close to Tsipras - said: "Yes, there would be political developments".

National unity govt

A 'yes' from voters does not automatically mean early elections even if it triggered the government's collapse. If Tsipras were to resign, the president could call opposition party leaders and try to form a minority, cross-party government of pro-euro parties like the centrist To Potami, the centre-left PASOK and the conservative New Democracy to implement the bailout programme accepted by Greeks.

No vote in referendum

Greek government officials say a "no" vote would strengthen its negotiating hand with creditors although euro zone officials have said
their offer expires when Greece's bailout ends on June 30. A "no" vote would almost certainly shut the door on the prospect of further aid from creditors, leaving the country in uncharted territory and hastening its exit from the euro.

Effect on Indian markets

After tumbling over 602 points in early trade spooked by Greece concerns that may trigger capital outflows, the benchmark BSE Sensex recovered over 435 points, powered by gains in HUL, ITC, L&T, ICICI Bank and Dr Reddy's, but still closed down over 166 points.

The broader NSE Nifty after dipping below the 8,200-point mark, recovered most of losses to close 62.70 points or 0.75% down at 8,318.40. Intra-day, it shuttled between 8,195.65 and 8,329.45.

Read: Debt crisis: Greece closes banks; Sensex, global markets crash

Sensex falls 600 points as Greece closes banks amid debt crisis

Greek pension scheme in turmoil

also read

Asian shares tentative, euro sags as Greece likely to default today
Show comments