Greek banks opened for the first time this month as the limited infusion of European cash kept capital controls intact and restricted operations to basic services.
Prime Minister Alex’s Tsipras had ordered the banks shuttered on June 29th to conserve rapidly ebbing funds. Greeks had withdrawn large amount of cash, 8.1 billion euros in June, and the European Cantal Bank had refused to increase its liquidity provisions in the face of stalled debt negotiations.
Greek financial markets will remain closed through at least Wednesday.
Greeks lined up outside banks in Athens and elsewhere today to conduct routine business such as money transfers, check deposits and bill payment. A withdrawal limit of 300 euros this week and 420 euros from next week replaces the 60 euro a day limit.
On Thursday the ECB had agreed to provide the Bank of Greece 900 million euro under its Emergency Liquidity Assistance Program, enabling the financial system to begin partial functioning again. However capital controls remain and fund transfers out of the country are subject to government approval, with most prohibited.
The European Union granted Greece a bridge loan over the weekend and today disbursed 7.16 billion euros ($7.7 billion) to Athens so it could pay an overdue 1.5 billion euros to the International Monetary Funds and 3.5 billion euros ($3.8 billion) to the ECB.
News of the ECB payment gave the euro a boost against the dollar in European markets reaching 1.0865 and New York action took it further to 1.0870. But by mid-afternoon the united currency had lost all its American gains, trading at 1.0832 at 2:15 pm, below the 1.0851 New York open.
Of the loan amount, 96 percent, 6.8 billion euros ($7.4 billion) of the total 7.16 billion ($7.7 billion) will immediately leave Greek accounts to pay various international debts and the Bank of Greece. Barely 300 million euros ($323 million) will remain to help Greek internal finances.
The Greek parliament had passed the draconian austerity measures including pension reductions, a 10 percent VAT increase and privatization sales last Friday as demanded by its creditors, before negotiations could begin on the third rescue package for the Mediterranean nation since the debt crisis began in late 2009.
The terms of the pending three year bailout program, currently estimated at 86 billion euros ($94 billion) but likely to rise as the cost to the three week financial shutdown to the Greek economy are calculated, will be represented as a negotiation between Greece and its creditors, but in reality, the terms will be dictated by the creditors led by Germany.
The Greek government seconded by the IMF and the United States, has sought a reduction of its overall debt amount as part of any new rescue package.
But German Chancellor Angela Merkel has ruled out any forgiveness of the outstanding 240 billion euro debt, offering only, and in the future, unspecified, schedule and interest rates adjustments.
Europe’s most indebted country came close to being forced out of the euro this month when the ECB refused to increase its liquidity assistance to Greek banks. Faced with continuing and escalating withdrawal, a bank closure was essentially forced by the ECB decision.
If the banks had not been shut and capital control installed, the Greek financial system would have collapsed as withdrawals and transfers would have drained all remaining cash from the banks. In that situation the government could have been forced to issue some form of script or currency just to continue functioning.
Prime Minister Tsipras had surprised and angered European leaders by calling a snap referendum July 5th on the spending cuts and tax rises demanded by creditors. He promised the Greek electorate that a rejection of the harsh terms would enhance his negotiating power.
A majority of Greeks voted “no,” as his government requested. But in the end Tsipras had no choice but to agree to the even more onerous package proffered by Europe or face imminent collapse of the Greek financial system.
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