Closed banks and capital controls until referendum

Greece heads to a referendum on Sunday that could decide whether its future lies in or out of the eurozone, with its banks closed and capital controls in place after the European Central Bank decided not to further increase the emergency liquidity it supplies to local lenders.

The decision to impose the extended bank holiday was taken during a meeting of Greece’s financial stability council, which included Finance Minister Yanis Varoufakis and Bank of Greece Governor Yannis Stournaras.

Sources said that ATM withdrawals would be limited to 60 euros per day per account and that banks would remain closed for at least the next six working days, including the day after the referendum on the institutions’ proposals to Greece. Visitors to Greece will be able to withdraw cash up to the limit set by their bank.

The decision to shut down banks and bring in capital controls came less than 24 hours after Parliament voted in favor, by 178 votes to 120, of holding a referendum on Sunday. This, combined with the expiration of Greece’s bailout extension Tuesday, prompted the ECB governing council, which met Sunday, to decide not to raise the Emergency Liquidity Assistance ceiling beyond the level it reached on Friday.

This meant that banks would not have enough liquidity to support the spike in withdrawals prompted by Prime Minister Alexis Tsipras calling a referendum on Friday night. Around 1 billion euros was taken out of accounts on Saturday as Greeks queued at ATMs around the country. There were longer queues Sunday.

Tsipras blamed the country’s creditors for forcing Greece’s hand but said that this would not halt the plan to hold a referendum next Sunday.

“(Rejection) of the Greek government’s request for a short extension of the program was an unprecedented act by European standards, questioning the right of a sovereign people to decide,” Tsipras said in televised address to the nation Sunday.

“This decision led the ECB today to limit the liquidity available to Greek banks and forced the Greek central bank to suggest a bank holiday and restrictions on bank withdrawals.”

Tsipras also said he sent a new request for an extension of Greece’s bailout – which expires on June 30 – to leaders of eurozone countries and the heads of the European Central Bank, the European Commission, the EU parliament and the European Council.

“I am awaiting their immediate response to a fundamentally democratic request,” he said, adding that such a move could prompt the ECB to turn on the liquidity tap again.

“One thing is clear: the refusal of a short extension, and the attempt to nullify a democratic procedure is an act deeply offensive and shameful for the democratic traditions of Europe.”

Tsipras suggested that the lenders’ behavior would make Greeks more determined to vote against the bailout proposal put forward by lenders to the Greek government on Thursday. In his speech in Parliament on Saturday, the Greek prime minister suggested that a “no” vote would allow him to return to negotiations in a stronger position and able to ask for a better deal from the institutions.

Tsipras said bank deposits and wage and pension payments in Greece remained safe and appealed to Greeks to stay calm.

“Any difficulties that may arise must be dealt with with calmness,” said the premier. “The calmer we are, the sooner we will get out of this situation.”

New Democracy leader Antonis Samaras, who clashed with Tsipras in Parliament on Saturday, called on the prime minister to continue negotiations with the country’s lenders this week in the hope of finding a last-minute compromise. Samaras suggested that if Tsipras does not have enough support from his own party, he should create a national unity administration with the participation of opposition parties.

“Our country needs to remain in the heart of Europe and in the euro. Mr Tsipras must continue the negotiations,” Samaras said. “If he can’t do that by himself, he should attempt a big national consensus.”

Developments in Greece also drew the attention of the American government Sunday. US Treasury Secretary Jack Lew urged top European finance ministers and the International Monetary Fund to continue working together toward a “sustainable solution” to reforms in Greece and its recovery within the eurozone.

Lew spoke by phone with several top officials on Saturday, including the finance ministers of Germany and France, and IMF Managing Director Christine Lagarde, according to a readout of the call provided by the Treasury Department on Sunday.

In those calls, he said it was “important for all parties to continue to work to reach a solution, including a discussion of potential debt relief for Greece, in the run up to the July 5th referendum,” according to the readout, referring to a planned vote in Greece.

Lew also underscored the need for Greece to adopt “difficult measures to reach a pragmatic compromise with its creditors,” the Treasury statement said.

The Treasury spokesperson said senior department officials have also been in regulator communication with Greece and that Lew had spoken to Prime Minister Alexis Tsipras “multiple times” over the past two weeks.

The department has urged Greece to work closely with its international partners on planning for a bank holiday and capital controls, the spokesperson said.

President Barack Obama spoke with German Chancellor Angela Merkel on Sunday about the Greek situation.

“The two leaders agreed that it was critically important to make every effort to return to a path that will allow Greece to resume reforms and growth within the eurozone,” a White House statement said.

“The leaders affirmed that their respective economic teams are carefully monitoring the situation and will remain in close touch.”