THE European Central Bank (ECB) has announced it will keep the level of emergency credit to Greek banks unchanged, leaving them under increasing pressure as they try to cope with cash withdrawals.
The announcement came as European leaders prepared to hold emergency talks today following the shock vote on Sunday, when Greek voters overwhelmingly rejected further austerity measures demanded by international creditors.
Yesterday global financial markets stayed depressed over worries that the crisis would lead to Greece’s exit from the euro.
In a statement, the ECB said its emergency credit could "only be provided against sufficient collateral". That collateral has been weakened due to the worsening financial situation of Greece. The decision leaves the Greek banks in a stranglehold, as they struggle to replenish cash machines.
European leaders have been left stunned by Sunday’s vote, which they claimed was a vote over whether Greece should leave the eurozone.
Prime Minister Alexis Tsipras insisted that the 61 per cent of voters who rejected more austerity in return for rescue loans merely wanted a better deal, and has pointed to a new report from the International Monetary Fund (IMF) that concludes a restructuring of Greece’s £213 billion debt is essential.
He claims he is happy to return to negotiations and that Greece’s willingness to compromise has been emphasised by the resignation of controversial finance minister Yanis Varoufakis, who recently compared his country’s creditors to terrorists.
Varoufakis is expected to be replaced by Oxford-educated Euclid Tsakalotos, who is seen by eurozone leaders as a more acceptable member of Greece’s left-wing Syriza government.
However, despite the IMF report there is still widespread opposition to any debt write-off.
“I really hope that the Greek government, if it wants to enter negotiations again, will accept that the other 18 member states of the euro can’t just go along with an unconditional haircut,” said German Vice-Chancellor Sigmar Gabriel.
“How could we then refuse it to other member states? And what would it mean for the eurozone if we’d do it? It would blow the eurozone apart, for sure.”
The increasingly tense negotiations between heavily indebted Greece and its creditors culminated in the Greek Government’s unexpected call last week for a referendum on the conditions attached to a new bailout. Greece’s request for an extension to the emergency funding until after the referendum was refused, forcing the government to close the banks and restrict withdrawals to £40 a day. Greece also failed to pay the £1.1bn due to the IMF. Another payment of £2.1bn is due on July 20.
Tsipras has agreed to some reforms but wants a third bail-out of £20.1bn in return. It is fear a failed deal could lead to a Grexit.
Polish Prime Minister Eva Kopacz said Sunday’s vote was “probably a new stage towards [Athens] leaving the eurozone.”
The Greek drama is seen as the eurozone’s biggest ever threat, with several other European governments facing anti-austerity and anti-euro movements.
Last night German Chancellor Angela Merkel, who is facing the gravest crisis of her decade in power, was in talks with French president Francois Hollande, whose government wants to continue negotiations with Tsipras.
However, many Germans have lost patience with Greece. They had hoped a Yes vote would lead to the collapse of the Greek Government and its replacement by technocrats likely to agree to all the terms imposed by creditors. They now believe Greece should be forced to exit the euro.
Gabriel said “new negotiations were difficult to imagine” and Tsipras had “torn down the last bridges on which Greece and
Europe could move towards a compromise.” He added that if Tsipras wanted to stay in the euro he would have to come up with a good offer that went further than former proposals.
However, some European leaders said it was necessary to push for some sort of agreement, as a Greek exit would have serious repercussions. Italian foreign minister Paolo Gentiloni said: “There is no escape from the Greek labyrinth with a Europe that is weak and without growth.”
Spain has also said that Greece should remain in the euro and that a third bailout should be negotiated.
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