The country’s government, led by prime minister Alexis Tsipras, has asked European officials for an extension to the bailout funds until Greece votes on Sunday in a referendum on reforms that the country’s creditors had proposed in exchange for loans.
Failure to come to an agreement over economic reforms means that the European Central Bank has refused to release €7.2bn of bailout funds which would allow Greece to repay its debt. If Greece defaults on its IMF loan, it will become the first country in the developed world to have done so.
German chancellor Angela Merkel yesterday warned that if the “euro fails, Europe fails”, urging compromise on all sides of the Greek crisis, but added that Europe needed to stick to its principles.
Meanwhile, UK Chancellor George Osborne warned that a Greek exit from the euro would be “traumatic”, saying that the referendum “will effectively be a choice for the Greek people about whether their country leaves the euro”.
Greek banks have been shut for six days in a bid to avoid financial panic. ATMs remain open, although there have been reports that many have run out of cash, while others have long queues as people try to salvage their savings amid fears that the country could drop out of the euro.
Many Greek pensioners do not have bank cards and rely on making in-person withdrawals at banks to access their money.
Deposits held in Greek banks fell to an 11-year low last month and have lost nearly 15 per cent of their total value since last November as wealthy Greeks withdrew the bulk of their cash when the leftist Syriza party came to power at the turn of the year.
Cash withdrawals for Greek people have been limited to just €60 a day by the government, although withdrawals with foreign bank cards are permitted.
“The images of queues at ATMs in Greece are stripping traders of what little confidence they have left in the nation, and the financial earthquake that happened in the eurozone over the weekend can be felt around the world,” said David Madden, market analyst at IG.
The FTSE 100 fell by around 1.4 per cent. Stocks also slumped in Asia and Europe, where Germany’s main index was down 2.5 per cent and the market in Athens remained closed for the week. Wall Street indices closed down 2 per cent or more while the euro fell sharply, as did oil prices.
James Hughes, chief market analyst at brokerage firm EToro, said: “Of course, talks continue to go on and we could still get a resolution to the slow-motion car crash that is the Greek economy within days but that doesn’t help those looking to trade the markets. This week really holds very few answers until we get to the referendum on Sunday.”
Mr Tsipras yesterday spoke to European Commission head Jean-Claude Juncker, claiming that preventing the Greek people’s democratic expression by shutting down the banks is not within Europe’s democratic tradition. He asked for Mr Juncker to help ensure the Greek bailout can be extended by a few days and liquidity restored to the banks.
However, after a period of good relations throughout the talks, Mr Juncker turned against the Greek leader yesterday, complaining that “egotism, tactical games, populist games” took over from cool-headed economic analysis. He said: “I feel a little betrayed.”
David Cameron said yesterday that if the Greeks vote No on budget savings and reforms that the country’s creditors had proposed in exchange for loans, he would “find it hard to see how that is consistent with staying in the euro”.
The UK government has been holding meetings for months to prepare for the potential of a Greek exit from the eurozone, including advising British tourists to take money with them when they go to Greece and helping those who have retired there.
The referendum will see the Greek people vote on measures its creditors demand in return for more bailout aid. Mr Tsipras has urged his citizens to vote against the package.