Greek Prime Minister Alexis Tsipras has announced that banks will close and capital controls will be imposed until the 7th July.
Essentially, their aim is to prevent money leaving the country; capital controls mean that the government is able to restrict the amount that banks can allow people to withdraw, and transfer overseas.
In brief, the controls are:
– There will be a bank holiday until Tuesday 7th July, after a national referendum on the deal.
– From midday June 29, ATMs will operate with a daily cash withdrawal limit of 60 euros per card, which is equivalent to 1,800 euros a month
– Electronic transactions within the country won’t be affected. All transactions with credit or debit cards and other electronic forms (web banking, phone banking) can be conducted as normal
– Any urgent transfers overseas – for medical reasons, for example, or to students studying abroad – will be dealt with by a special Committee to Approve Bank Transactions. This has been established at the State General Accounting Office in cooperation with the Finance Ministry, the Bank of Greece, the Union of Greek Banks and the Capital Markets Commission.
Tourists will largely be unaffected by the controls, and will be able to withdraw unlimited funds from ATMs (subject to cash availability); essentially, the money is coming out of their national bank and will allow them to contribute to the economy, so there is no need to impose restrictions.
All limits to prevent the free movement of money, such as those imposed by Greece, go against the very essence of the EU treaties. The controls aren’t illegal – the EU’s Financial Services Commission said in a statement that “in the current circumstances, the stability of the financial and banking system in Greece constitutes a matter of overriding public interest and public policy” – however, it is assumed that they would be removed as soon as is practicable.
However, the history of capital control use has shown that they rarely work they way they are supposed to.
Cyprus is the only other EU country to have imposed capital controls, which were put into use in 2013 after a banking crisis and a subsequent bailout negotiations with the IMF and the EU. There, the limits were much less strict; the withdrawal limit was 300 euros, and tranfers abroad were allowed up to 5000 euros a month. Gabriel Sterne, the head of global macro research at Oxford Economics, told Bloomberg: “The key point is that Cyprus’s were part of a cruel solution, while Greece’s would be part of a failure to agree on any sensible solution”.
Capital controls “would solve nothing,” said Cypriot economist Athanasios Orphanides. “European governments have to make up their minds. Either they force Greece out of the euro or they lighten the debt burden the government faces to help the country stay in the euro.”
Outside the EU, in Argentina froze bank deposits and banned overseas transfers, moves that led to an eruption of protests and ended in the death of 27 people. However, Iceland recently imposed capital controls and they kickstarted the economy, stabilizing the krona and, according to the IMF, “giving the nation the breathing room it needed the to get back on track.”