ATHENS, Greece – Greece’s government on Monday ruled out restricting access to bank accounts and the free movement of money if there is no breakthrough soon in tortuous talks with bailout creditors and its dwindling cash reserves dry up.
The possibility of imposing capital controls — part of a chain of events that could lead to Greece leaving the euro if things take a disastrous turn — “simply does not exist,” said Gabriel Sakellaridis, spokesman for the radical left-led government.
He spoke after a senior opposition conservative lawmaker was quoted as saying capital controls could be imposed this coming long weekend — June 1 is the Orthodox Pentecost holiday — or shortly later if the government is unable to make a loan repayment due to the International Monetary Fund on June 5.
Greece has survived for the past 5 years on rescue loans from the IMF and its European partners. But the creditors have held up the rescue loans as long as Greece does not agree to make new economic reforms. Officials in the governing Syriza party say salaries and pensions have priority over loan repayments if push comes to shove amid a growing liquidity crisis.
Experts say Greece could eventually have to impose capital controls to prevent a bank run, when depositors flock to bank branches and ATMs to withdraw their savings. An estimated 30 billion euros ($33.5 billion) have already flowed out of Greek banks since elections were called late last year, but a more sudden surge in withdrawals would cause the banks to collapse.
Such a panic could be triggered by the country — which is already scraping together its last cash reserves — failing to make a payment to the IMF, or any other creditor, or being unable to fully pay pensions and public sector salaries. One Syriza official has said that Greece lacks the money to repay the IMF next week.
In turn, such a market panic would render worthless the government bonds and treasury bills Greek banks use to borrow vital capital from the European Central Bank. Bankrupt and without a functioning banking system, Greece would then have to dump the euro for a new, severely devalued version of its old drachma currency.
“Such scenarios lack any foundation whatsoever, are malignant and are used in a completely irresponsible fashion,” Sakellaridis told a press briefing. “The possibility of us having capital controls, or any other development in the banking system, quite simply put, does not exist.”
He insisted that talks with bailout creditors, launched after the Syriza party won Jan. 25 elections on a promise to not make more budget-cutting reforms, would come to fruition “in a short time.”
“That is the government’s intention and the target we have set,” Sakellaridis said. “By the end of May, the start of June, to be able to have a mutually beneficial agreement.”
“This government has the duty to pay its obligations both in Greece and abroad,” he said. “The liquidity problems are known. We want to meet our obligations, which is why we are trying to achieve an agreement as soon as possible,” he added.
Officials in Athens say a deal is close despite an apparent deadlock on key issues, such as demanded pension and labour market reforms.
Greek shares were down about 2 per cent in early afternoon trading Monday.