Greece on the Brink: Capital Controls and Economic Uncertainty

Greek Prime Minister Alexis Tsipras's government announced a referendum for the Greek people to vote on the EU's draft bailout proposals, after months of negotiations on a deal to restructure Greece's debts failed. The EU's package, which includes measures relating to VAT increases, budgetary restraints, pension reforms, and privatization measures, has been met with resistance from the Greek government, which will campaign against the proposals.

As the current EU bailout program expires on June 30, 2015, Greece faces a deadline to make a €1.6 billion payment to the International Monetary Fund (IMF) on the same day. With the European Central Bank (ECB) capping its Emergency Liquidity Assistance (ELA) program, Greek banks have been kept on life support, but further drawdowns are not possible if the ECB considers them insolvent. The situation has led to the imposition of capital controls, including limits on the amount of money individuals and businesses can withdraw or transfer overseas, prohibitions on the cashing of checks, and daily limits on transfers from banks.

Key Takeaways:

• The current EU bailout program expires on June 30, 2015, with Greece due to make a €1.6 billion payment to the IMF on the same day.
• The European Central Bank (ECB) has capped its Emergency Liquidity Assistance (ELA) program, making further drawdowns impossible if Greek banks are considered insolvent.
• Capital controls have been imposed, including limits on withdrawals, prohibitions on cashing checks, and daily limits on transfers from banks.
• The Greek government will campaign against the EU's draft bailout proposals in a referendum scheduled for July 5, 2015.
• The private sector is owed only 15% of Greece's total debt of approximately €320 billion.
• Default would mean a significant loss for the ECB, which is owed €118 billion from Greek banks.

Statistics:

• The total Greek debt is approximately €320 billion (as of March 2015).
• The private sector is owed only 15% of Greece's total debt.
• The European Central Bank (ECB) is owed €118 billion from Greek banks.
• Greek banks have been kept on life support through the ELA program, with €89 billion made available since the end of May 2015.
• Private sector deposits in Greek banks had fallen to €130 billion by the end of May 2015, from €164 billion in November 2014.

Sources:

• EU press release, IP-15-5270 (European Commission, June 2015)
• Article 63 of the Treaty on the Functioning of the European Union (TFEU)
• Article 65(1) of the TFEU
• European Central Bank (ECB) Vice President Vitor Constancio's statement in April 2015
• Mondaq article, "Greece: Capital Controls" (June 2015)