Greece faces banking collapse as ATMs run dry

People stand in a queue to use ATMs of a bank in central Athens, Sunday, June 28, 2015. Greece weighed drastic banking restrictions to stave off a financial collapse on Sunday as anxious Greeks emptied cash machines amid fears that banks will be closed this week. AP PHOTO/THANASSIS STAVRAKIS

ATHENS, Greece–Greece weighed drastic banking restrictions to stave off a financial collapse on Sunday as anxious Greeks emptied cash machines amid fears that banks will be closed this week.

Long queues of up to a hundred people formed outside some ATMs in Athens as fears mounted that Greece will be forced to implement capital controls that would restrict withdrawals from its stricken banking system.

“There is a fear that tomorrow, banks will not open, so I take money for the rent (and) the daily expenses,” said a woman, waiting in a line in Athens, who declined to give her name.

Alarm spread after the dramatic breakdown of bailout talks between Athens and its creditors over the weekend and a decision Sunday by the European Central Bank not to increase its financial support to the Greek banks.

Greek Finance Minister Yanis Varoufakis and the Greek central bank chief met Sunday afternoon for an emergency session of the “systemic stability council” as the crisis-weary country prepared for the worst.

Asked about capital controls in a BBC interview, he replied: “This is a matter that we’ll have to work overnight on with the appropriate authorities both here in Greece and in Frankfurt.”

Since Friday night alone, 1.3 billion euros ($1.45 billion) have been withdrawn from the Greek banking system, according to the head of the bank workers’ union Stavros Koukos.

A banking source in Greece said only 40 percent of cash machines now had money in them and a host of European governments advised citizens traveling to Greece to carry money with them.

“It is a dark hour for Europe as far as I’m concerned,” warned Varoufakis.

‘Real risk’

The Frankfurt-based ECB’s governing council earlier held an emergency telephone conference and pledged to maintain 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 amid signs a bank run was gathering pace.

The long festering crisis took a sharp turn for the worse on Friday night after months of deadlocked negotiations between the new hard-left government of Prime Minister Alexis Tsipras and the country’s creditors.

The two sides have been at odds over the economic reforms demanded by the creditors in exchange for fresh cash needed to keep the Greek state afloat.

Tsipras stunned Europe on Friday night with a surprise call for a July 5 referendum on the latest cash-for-reforms package and advised voters against backing a deal that he said spelled further “humiliation.”

For Tsipras, austerity has been a “humanitarian catastrophe” for his country of about 11 million people, which has endured five years of recession, turmoil and skyrocketing unemployment.

Exasperated eurozone members, suspecting a further play for time, responded by refusing to extend the EU’s funding program beyond a Tuesday deadline.

This will almost certainly mean Greece will be in default on more than 1.5 billion euros ($1.7 billion) due to the International Monetary Fund on Tuesday.

French Prime Minister Manuel Valls warned of a “real risk” of Greece leaving the eurozone if its citizens vote against the EU’s bailout proposals in the referendum planned for next weekend.

An open door?

Speaking to German media, Varoufakis said German Chancellor Angela Merkel–long Europe’s champion of tough reforms in exchange for bailout cash– “holds the key” to resolving his country’s crisis.

“The EU leaders must act. And among them she, as the representative of the most important country, holds the key in her hand. I hope she uses it,” he told Bild newspaper.

The International Monetary Fund, a key creditor in the negotiations accused by Athens of pushing a hardline on reforms, said it was monitoring the unfolding crisis and was ready to provide assistance.

Managing Director Christine Lagarde expressed disappointment that talks had broken down between Athens and its creditors, but said she believed the eurozone was in a “strong position” to respond to the crisis.

“The coming days will clearly be important,” she said in a statement.

The focus now will be on quarantining Greece and containing the fallout for the other 18 members from “contagion” on financial markets which are set for a turbulent day on Monday when they open.

The ECB said it was “closely monitoring the situation in financial markets and the potential implications for the monetary policy stance.”

The ECB–which has maintained ultra-low interest rates and launched large-scale quantitative easing measures–said it “is determined to use all the instruments available within its mandate” to maintain price stability.

OECD chief economist Catherine Mann told Italy’s La Stampa newspaper that “if you ask me if (markets) are ready for what is happening in Greece, I reply that no, their forecasts don’t predict any risk. The markets are not prepared.”

Missing the IMF payment on Tuesday does “not spell immediate formal default or even Grexit. But it would put Greece on the slippery slope towards Grexit,” wrote Holger Schmieding, chief economist of Berenberg Bank.