Ο ανήφορος φέρνει κατήφορο

With his back to the wall, the Prime Minister of Greece, Alexis Tsipras, did what every politician in his position would do – he made a political move by calling for a snap referendum to be held on July 5. The question to be put before voters is whether or not the country is willing to submit to the conditions being demanded by the International Monetary Fund, European Union and European Central Bank. This may be a moot point because the IMF is owed a payment on June 30th; this will not be made and opposition leaders may call for a no-confidence vote. If successful, it would cause a new government to be formed or the dissolution of the government and new elections. As you can see there are still many unknowns at play here.

What we do know is that the Greek banks have no more money, so a bank holiday and capital controls was implemented yesterday (Monday, June 29th). For the rest of the Eurozone, we are sure that the key leaders of each country will have that Boomtown Rats song playing in the back of their heads – “I Don’t Like Mondays.” We can see headline already – “Black Monday”, “Lehman Weekend”, “Opa Oops”. As we write this commentary, trading has opened and the Euro has gapped down.

Lest we forgot, the other big news was that on Friday out of China. China’s central bank cut reserve requirements up to 50 bps and cut the benchmark one-year deposit and lending rates by 25 bps. Strap on your seat belts because this is going to be humdinger of a week!
What are the Capital Controls in Greece?

During the summer months, Greece isn’t typically known for high-stakes drama, but in the last few days, negotiations between Greece and its European paymasters indicate that the country’s economic crisis is approaching a breaking point. Briefly summing up the banking crisis, deposits fell to an 11-year low in May and have lost nearly 15% of their value since November. Stoking the flames is the fact that wealthy Greeks pulled their money out of Greek banks as soon as the Leftist Syriza government came to power in January with the promise to end austerity. With tomorrow’s bail-out expiry looming, more and more ordinary citizens have started queueing up at ATM’s to pull out their savings in fear of a full-blown banking collapse.
The Greek government implemented a number of measures in the early hours of Monday to keep money in the financial system. Here is a summary of the capital controls that were implemented to protect the financial system:

 From Monday, June 29, 2015, banks will remain closed up to and including Monday, July 6;

 Deposits are fully safeguarded;

 The payment of pensions is exempted from the restrictions on banking transactions. Management of credit institutions will announce how these will be paid;

 Electronic transactions within the country won’t be affected. All transactions with credit or debit cards and other electronic forms (web banking, phone banking) can be conducted as normal;

 Prepaid cards may be used to the limit existing before the beginning of the bank holiday;

 From midday June 29, ATMs will operate with a daily cash withdrawal limit of 60 euros per card, which is equivalent to 1,800 euros a month;

 Foreign tourists can make cash withdrawals from ATMs with their cards without restrictions provided these have been issued abroad; and

 A special Committee to Approve Bank Transactions has been established at the State General Accounting Office in cooperation with the Finance Ministry, the Bank of Greece, the Union of Greek Banks and the Capital Markets Commission. This committee will deal with applications for urgent and imperative payments that can’t be satisfied through the cash withdrawal limits or by electronic transactions (e.g. payments abroad for health reasons). Wages paid electronically to bank accounts aren’t affected.

The question becomes, will the capital controls affect the outcome of the referendum? It’s hard to dissect the psyche of the average Greek citizen at the moment. Waking up in the morning to find out that you can only take out 60 Euros per day will certainly have a big impact. But if the Greeks think that the Europeans are cutting them off, it could push them to vote “No” and reject the bail-out deal. On the flipside, the prospect of life under capital controls could scare many into voting “Yes” out of fear of things to come should they leave the Euro.
Hold on to your hats – HUGE week ahead!

Oh yes, before we sign off, you may be wondering about the title of this piece, Ο ανήφορος φέρνει κατήφορο, which in Greek means the uphill is followed by a downhill. It’s the equivalent of what goes up, must come down.