每日推荐阅读：Nowhere to get money

山姆大叔

Nowhere to get money

DAY by day the folly of the unexpected decision by Alexis Tsipras, the Greek prime minister and leader of the radical-left Syriza party, to call a referendum on the proposals made by Greece’s creditors is being exposed as the consequences are laid bare. Yesterday visibly shocked and infuriated finance ministers from the other 18 euro-zone states withdrew the deal that they (together with the IMF) were offering Greece, which would have released urgently needed bail-out funds. Today the European Central Bank (ECB) has put a cap on the amount of money that Greek banks can borrow from the Bank of Greece, the central bank in Athens. On Monday Greek citizens will wake up to find their banks closed.

Since Syriza won the election of late January it has been unclear which would buckle first: the cash-strapped state or the deposit-drained banks. It now appears that they will both buckle within days. Unless a minor miracle occurs the Greek government will not repay the International Monetary Fund 1.5 billion Euro ($1.7 billion), an amount that it is due to make by the end of the month, on Tuesday. Defaulting on the IMF is bad enough and an unwise step for any state let alone one that may lose the security blanket of the euro. But an even bigger crisis for Mr Tsipras will be shuttered banks.

Since late last year when worries mounted about an early election that might bring Syriza to power Greek banks have been haemorrhaging as deposits have been moved abroad or taken out in cash and put under mattresses. At the end of November 2014, private-sector deposits (held by corporations and households) stood at 164 billion Euro($184 billion). By the end of May they had fallen to 130 billion Euro, a decline of a fifth; and billions more of euros have been taken out this month.

The relentless drain on Greek banks has forced them to rely more and more upon central-bank funding to plug the hole in their books. In Greece’s case this lending is now predominantly in the form of “emergency liquidity assistance” (ELA). As is the case with normal lending the funds come from the Bank of Greece, one of the nineteen central banks in the euro area which execute the ECB’s policies (and together with the ECB form the Eurosystem). But unlike usual lending, the risks are not shared across the Eurosystem but are shouldered solely by the Bank of Greece (although this offers little reassurance in a country that is in effect insolvent). The ECB vets the amount of ELA and can restrict it if a two-thirds majority of the 21-strong governing council votes to curb it.

As deposits have drained from the Greek banks in the past few months the ECB has gradually raised the limit on the amount of ELA that the Bank of Greece can provide. This reached 89 billion Euro on Friday June 26th. The ECB adopted this policy despite urging from some quarters, notably the German Bundesbank led by Jens Weidmann, for a tougher line because despite fraught negotiations it still appeared that an agreement would eventually be reached between the Greek government and its creditors. But now that the deal has collapsed, the ECB has called time: today it announced that there would be no further increase in the amount of ELA.

In itself this might appear to be a mild response. The ECB could after all have demanded more draconian measures such as a cut in ELA. But since Mr Tsipras announced his referendum (which was voted through by the Greek parliament yesterday) a bank run has got under way with long queues outside ATMs. In these circumstances a cap on ELA must mean tough restrictions on deposit withdrawals both in cash and through transfers abroad.

There is precedent for this. Although remaining capital controls were lifted in the European Union over two decades ago they were reimposed in Cyprus two years ago, together with deposit freezes. Banks were also closed for the best part of two weeks in March 2013. The Cypriots managed to cope and the capital controls were recently lifted. But for Greeks it will be a stark wake-up call of the cost of Mr Tsipras’s referendum and this may concentrate minds when they vote on it next Sunday. Although the proposals that they are voting on have in any case been withdrawn the outcome still matters since it will send a clear message about whether the Greeks as opposed to the Greek government are prepared to do what it takes to stay in the euro.