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No vote could trigger harsh move by ECB

Last Updated 05 July 2015, 16:26 IST

 European leaders across the spectrum have made it clear that they would interpret the ‘No’ vote as a choice made by the Greek people to leave the 19-nation eurozone. Given this context, much will depend upon the decisions taken by the European Central Bank (ECB) on whether a Greek Banking sector collapse can be averted or not.

Last week, ECB had capped the emergency loans available to Greece at €89 billion immediately after Prime Minister Alexis Tsipras broke off negotiations and announced a referendum.

Since much of the emergency loans had been already availed, Greece was forced to impose capital controls by shutting down its banks and capping ATM withdrawals at €60 a day.

National Bank of Greece chief Louka Katseli had told reporters last Friday that banks in the country had only about $1.1 billion in reserves remaining, enough to last till Tuesday morning.

The onus, therefore, is on the ECB to either bolster the emergency funding, or pull the plug on assistance. In case of the latter, the Greek banking sector would collapse, a move that could lead to the country’s exit from the eurozone.

Signs of softening seen

But will the ECB chief Mario Draghi adopt such a hardline stance? Its governing council is expected to have a conference call on Monday to take stock of the situation. Should the hardliners who want Greece punished prevail, Draghi would have to take into account the bad press resulting from any humanitarian crisis in Greece triggered by the move.

Some indications of softening was available on Sunday, when the head of the European Parliament, Martin Shulz, said that Europe will not “desert” the people of Greece regardless of the outcome of Sunday’s referendum and may provide it emergency loans.

Schulz told Germany’s Welt am Sonntag newspaper that the Athens government had manoeuvred the heavily-indebted country “into a dead end”.

“Perhaps we will have to give emergency bridging loans to Greece so that public service can be maintained and needy people get the money they need to survive,” he said. “For that, money would be available short term in Brussels,” the European Parliament president said in the interview. But he warned this would not be a lasting solution.

Greek Disaster Timeline

2008    Wall Street implodes
2009 Oct    Greece admits to tampering its deficit numbers for years
2009-2010    Greece was shut out from borrowing in the financial markets
2010 May    EC, ECB, and IMF launched a €110-bn bailout, in return for austerity measures
2012 Feb    Troika provides Greece with an additional €130 bn bailout loan
2012 Dec    IMF extends support with an extra              €8.2 bn promised loans


                  Austerity

Conditions

Deep budget cuts
Steep tax increases
Greece had to overhaul itseconomy
End tax evasion

Results

The economy has shrunk by 25% in 5 years
Unemployment is above 25%
Bailout money mainly goes to pay off creditors
Greece still has a high debt load







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(Published 05 July 2015, 16:26 IST)

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