Did Greece Just Launch Capital Controls: “Mandatory Cash Transfer” Decreed Due To “Extremely Urgent Need”
Submitted by Tyler Durden on 04/20/2015 09:57 -0400
We warned last week that capital controls were inevitable and it apears the first steps have been taken (very quietly):
- GREECE ISSUES DECREE: LOCAL GOVTS OBLIGED TO TRANSFER DEPOSIT RESERVES AT CENTRAL BANK
So, following the pension fund raid, the Greek government is now centralizing all Greek cash citing an “extremely urgent and unforeseen need.”.
One wonders if this is per Krugman’s advice?
As Bloomberg reports:
Govt decree issued today forces local govts, general govt sector entities to transfer cash reserves to the Bank of Greece.
*DECREE ON MANDATORY CASH TRANSFER POSTED IN GOVT GAZETTE
But fear not: you are being “fairly compensated” for this forced capital reallocation:
- GREEK CASH RESERVES INTEREST AT BANK OF GREECE 2.5%: OFFICIAL
From Reuters:
Greece issued a legislative act on Monday requiring public sector entities to transfer idle cash reserves to the country’s central bank, as part of efforts to deal with a cash squeeze. Greece has been tapping into the cash reserves of pension funds and public sector entities through repo transactions as it scrambles to cover its funding needs.
Monday’s act excludes pension funds and some state-owned firms. Cash reserves that are needed by these bodies for their immediate payment needs are also excluded from the regulation.
Athens’ scramble for basic funds shows how extreme the financial constraints on Greek Prime Minister Alexis Tsipras have become as he tries to convince sceptical foreign creditors to extend his country new financial aid.
The cash-strapped country must repay the International Monetary Fund almost 1 billion euros due next month. It has said it wants to honour its debt obligations.
…if capital controls were imposed as a product of a stand-off between Greece and its creditors rather than in the context of agreement as to the way forward (as ultimately in Cyprus), Greek politics could lurch towards the need for a parallel / substitute currency rather than as hoped towards commitment to the euro at all costs.
Krugman on How to Avert a Complete Catastrophe for Greece and for Europe
Photo Credit: via YouTube
Paul Krugman recounts some of his heartbreaking travels around Greece in Monday’s column. Years of severe austerity have wrought untold human suffering there. He visited a homeless shelter and heard stories about how the health care system in the country has collapsed. Wages have been cut for those lucky enough to have jobs. Unemployment is skyhigh.
As Krugman summarizes the story so far:
At the end of 2009 Greece faced a crisis driven by two factors: High debt, and inflated costs and prices that left the country uncompetitive.
Europe responded with loans that kept the cash flowing, but only on condition that Greece pursue extremely painful policies. These included spending cuts and tax hikes that, if imposed on the United States, would amount to $3 trillion a year. There were also wage cuts on a scale that’s hard to fathom, with average wages down 25 percent from their peak.
These immense sacrifices were supposed to produce recovery. Instead, the destruction of purchasing power deepened the slump, creating Great Depression-level suffering and a huge humanitarian crisis.
When the Greek public could not take any more they elected Syriza, a left-wing coalition that has promised no more cuts—a brand new direction. The question is, can Syriza and Greece’s creditors come to an agreement and avoid Greece’s exit from the euro, which Krugman and others say would be catastrophic for Greece, and bad for the rest of Europe as well.
Krugman thinks there is a way, and outlines a deal that would be to everyone’s benefit: “Basically, a standstill on further austerity, with Greece agreeing to make significant but not ever-growing payments to its creditors. Such a deal would set the stage for economic recovery, perhaps slow at the start, but finally offering some hope.”
As reasonable as it seems, that deal does not appear to be in the offing, and ordinary Greek citizens suspect that the rest of Europe just wants their country to fail. There is a “pervasive atmosphere of distrust.” Krugman says, as well as the problem that “political uncertainty is hurting tax receipts,” at a time when Greece can ill afford it.
Krugman concludes:
It doesn’t have to be this way. True, avoiding a full-blown crisis would require that creditors advance a significant amount of cash, albeit cash that would immediately be recycled into debt payments. But consider the alternative. The last thing Europe needs is for fraying tempers to bring on yet another catastrophe, this one completely gratuitous.
http://www.alternet.org/economy/krugman-how-avert-complete-catastrophe-greece-and-europe