The European Central Bank froze the level of emergency aid available to Greek banks in a move that threatens to cripple the country’s financial system after a flood of ATM withdrawals.
The Governing Council agreed on Sunday to cap the amount of cash available at the level set in its previous decision on Friday, it said in a statement. One euro-area official, speaking on condition of anonymity, said the ECB views the funds as insufficient for lenders’ requirements and that Greece will need to call a bank holiday before branches open on Monday.
The ECB also said it can use all tools available to protect the euro area, in a sign officials are now shifting focus to the potential fallout as Greece veers closer to a financial collapse. With Prime Minister Alexis Tsipras pledging a July 5 referendum on bailout terms previously proposed by creditors, a debt default and potentially an exit from the single currency are becoming increasingly likely.
“The ECB seems to have taken a balanced approach,” said Nick Kounis, head of macro research at ABN Amro Bank NV in Amsterdam. “The Greek banks are in a terrible liquidity situation one way or another. Perhaps starting off with a bank holiday and then moving to capital controls is realistic.”
The ECB said it stands ready to review its decision and is monitoring the implications for its monetary-policy stance. It is “working closely” with the Greek central bank.
“The Governing Council is determined to use all the instruments available within its mandate,” the ECB said.
