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Greek referendum call prolongs political uncertainty and raises capital fears Greek referendum call prolongs political uncertainty and raises capital fears
(about 1 hour later)
For Greek companies, the developments since Friday night could scarcely have been worse.For Greek companies, the developments since Friday night could scarcely have been worse.
The calling of a referendum will prolong the political uncertainty that a senior company executive said was “driving us nuts”.The calling of a referendum will prolong the political uncertainty that a senior company executive said was “driving us nuts”.
The failure of the Greek government to reach agreement with the rest of the euro zone’s finance ministers has raised fears of the European Central Bank (ECB) rejecting Greece’s request for continued emergency lending to keep its banks afloat. The management of the ECB meets on Sunday, the current bailout programme for Greece expires on Tuesday while the referendum has been called for next Sunday, 5 July. The failure of the Greek government to reach agreement with the rest of the eurozone’s finance ministers has raised fears of the European Central Bank (ECB) rejecting Greece’s request for continued emergency lending to keep its banks afloat. The management of the ECB meets on Sunday, the current bailout programme for Greece expires on Tuesday and the referendum has been called for Sunday 5 July.
The ECB had already restricted the flow as the talks built to a climax. “What has changed in the last few days is that instead of leaving us with a [cash] buffer of €3 bn, they have reduced it to €1 bn,” said a senior banker speaking on condition of anonymity.The ECB had already restricted the flow as the talks built to a climax. “What has changed in the last few days is that instead of leaving us with a [cash] buffer of €3 bn, they have reduced it to €1 bn,” said a senior banker speaking on condition of anonymity.
The ECB may now cut off the flow of cash altogether once the current bailout programme expires on Tuesday – if not before. The picture thereafter is unclear.The ECB may now cut off the flow of cash altogether once the current bailout programme expires on Tuesday – if not before. The picture thereafter is unclear.
“We have lost approximately 25% of our deposits since 2014,” said the banker. What remains is going to have to be looked after carefully. Limits on how much depositors can withdraw from their accounts, restrictions on international transfers – and even perhaps shuttered banks – are all now on the cards.“We have lost approximately 25% of our deposits since 2014,” said the banker. What remains is going to have to be looked after carefully. Limits on how much depositors can withdraw from their accounts, restrictions on international transfers – and even perhaps shuttered banks – are all now on the cards.
“We are ready for everything ,” said the executive, who works for of one of Greece’s biggest conglomerates.“We are ready for everything ,” said the executive, who works for of one of Greece’s biggest conglomerates.
“We have foreign banks ready to support us and enough cash to deal with payments inside and outside Greece We have ensured that, for a long period ahead, we have everything we need,” she said. That included raw materials and other supplies, said the executive who requested anonymity on grounds of commercial confidentiality.“We have foreign banks ready to support us and enough cash to deal with payments inside and outside Greece We have ensured that, for a long period ahead, we have everything we need,” she said. That included raw materials and other supplies, said the executive who requested anonymity on grounds of commercial confidentiality.
“I am sure the five or six biggest Greek corporations have made preparations. But medium-sized and small firms, even if they knew how to, could not. They’re exclusively based here and they work with the Greek banks,” she added.“I am sure the five or six biggest Greek corporations have made preparations. But medium-sized and small firms, even if they knew how to, could not. They’re exclusively based here and they work with the Greek banks,” she added.
Much will depend on how long the crisis lasts. Companies have taken billions of euros from the banks. Bank of Greece figures show that, of the €134 bn private sector deposits at the end of April, only €19 bn were corporate.Much will depend on how long the crisis lasts. Companies have taken billions of euros from the banks. Bank of Greece figures show that, of the €134 bn private sector deposits at the end of April, only €19 bn were corporate.
Related: Greek crisis: ECB to decide on emergency support - live updates
But the country needs cash to keep operating. Michael Massourakis, chief economist of SEV, which represents Greece’s 300 biggest firms, said: “I find it unbelievable that this economy, which is basically a cash economy, can function for long without cash.” Massourakis said that “the payment culture has deteriorated”: people had been hoarding cash and were failing to meet their obligations, even before the latest dramatic turn of events. That could only get worse.But the country needs cash to keep operating. Michael Massourakis, chief economist of SEV, which represents Greece’s 300 biggest firms, said: “I find it unbelievable that this economy, which is basically a cash economy, can function for long without cash.” Massourakis said that “the payment culture has deteriorated”: people had been hoarding cash and were failing to meet their obligations, even before the latest dramatic turn of events. That could only get worse.
“It is going to be like a chain reaction,” he said. “If I don’t get paid, I won’t pay you, and so on.”“It is going to be like a chain reaction,” he said. “If I don’t get paid, I won’t pay you, and so on.”
Massourakis also believed that the stultifying impact of capital controls could be amplified by the state of Greece’s bureaucracy. “You will need special licences to import and export. But the public administration has suffered wage cuts and morale is low,” he said. “We risk going back to the Soviet Union.”Massourakis also believed that the stultifying impact of capital controls could be amplified by the state of Greece’s bureaucracy. “You will need special licences to import and export. But the public administration has suffered wage cuts and morale is low,” he said. “We risk going back to the Soviet Union.”