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Greece Lightening

Europe called Greek Prime Minister Alexis Tsipras’s referendum bluff. Now, after a Saturday run on banks, Greeks are panicking.

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On Saturday, one day after Greek Prime Minister Alexis Tsipras called a surprise July 5 referendum for his people to decide whether to accept the terms of an EU debt package, European finance ministers declared an end to talks with Athens and cut their financial lifeline to Greek banks.

Cue panic on Hellenic streets.

Across the Mediterranean nation, Greeks queued at ATMs, desperate to withdraw money from banks that are now on the verge of failure. Without help from Brussels, it is unclear how long these banks can survive. And Greek financial institutions are much lighter this evening than they were when the sun rose.

According to reports, 400 million euros, or $446 million, was withdrawn from Greek banks Saturday. This follows a brief June 19 run, when Greeks pulled out $1.1 billion in cash. Officials there are warning some banks won’t open Monday. Hundreds of ATMs are now empty.

The widening run on Greek banks is a result of Tsipras abdicating his promise to end the crisis. He is now calling for Greeks to decide whether to accept Europe’s austerity terms — cutting Greece’s bloated pension system and accepting  new taxes on business and the wealthy — or go broke. Without a last-second breakthrough, Greece will miss a Tuesday deadline to pay back the International Monetary Fund the $1.8 billion it owes.

And without access to the $270 billion bailout fund created by the IMF, the European Commission, and the European Central Bank to save Greece, Athens will soon be bankrupt.

Amid this chaos, Greek leaders voted early Sunday morning to hold the referendum. Some members of Tsipras’s far-left Syriza party, including his development minister, have already called on Greeks to reject the bailout.

If the prime minister’s referendum gambit was a bid to win more time, it utterly failed. On Saturday, Greek Finance Minister Yanis Varoufakis said his country has asked Europe for an extension of a “a few days, a couple of weeks.” But Jeroen Dijsselbloem, head of Eurogroup—the collection of finance ministers—said that Greece had asked for a much longer time period to pay its debt.

“How does the Greek government think that it will survive and deal with its problems in that period? I do not know,” Dijsselbloem said, adding Europe is now taking steps to protect itself from the so-called Grexit, or Greece leaving the European monetary union.

Diplomatic relations between Greece and its European partners have reached an all-time low. According to Greek media, a Saturday telephone call between Tsipras, German Chancellor Angela Merkel, and French President Francois Hollande turned south quickly. Merkel said next week’s referendum is a choice “between the euro and drachma.”

“No it isn’t,” Tsipras responded. “This is the birthplace of democracy. We are a sovereign country and will not be told what question to pose in this referendum. The referendum will take place regardless of whatever the decision the Eurogroup takes.”

This kind of angry chatter is indicative of the state of relations between the Greek government and its lenders.

“There are a number of European countries who have put in place some difficult and unpopular reforms,” a European diplomat familiar with talks between Greece and Europe told FP. He was referring to Ireland and Portugal, which demanded spending cuts as part of European bailouts.

“To see the Greeks refusing to push forward to some of those reforms has created a degree of frustration among some of the key players,” the diplomat added.

Mujtaba Rahman, head of the Eurasia Group’s European practice, said a midnight meeting Sunday of Greek politicians might be too late to salvage a deal with Europe. The Grexit could be imminent.

“Tsipras’s strategy is to ask people whether or not to accept the Troika’s proposal, get the people to reject it, and use this as leverage in negotiations with the troika,” Rahman told FP, referring to the IMF, the European Commission, and the European Central Bank.

“It’s obviously a very, very risky strategy.”

Photo Credit: Sakis Mitrolidis/Getty Images

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