ATHENS — About 10 days ago my father, an Athenian businessman, sent me a worried SMS saying that the government might introduce capital controls in Greece the following morning. The information, he told me, came from an “informed source.”
Capital controls, methods a government or central bank uses to limit the flow of capital in and out of the domestic economy, are often the sign of financial endgame. States mostly use them to stop panicked citizens from moving their money out of a country they believe to be in danger of economic collapse. They’re desperate measures taken by desperate governments.
As it turned out, capital controls did not arrive (and still have not) but the SMS summed up perfectly the mixture of fear, uncertainty and rumor that is strangling Greece almost as viciously as its outstanding debts to the European Union and International Monetary Fund.
My father’s fear also pointed to a wider truth: rumor has escalated as the crisis has worsened. While no capital controls have yet been introduced, Greek money is flowing out of the banking system as a terrified populace rushes to withdraw its savings in case the country defaults on a €1.6 billion payment to the IMF due on June 30. According to Greek journalist Yiannis Baboulias, the problem is severe: “There is a definite run on the banks,” he says. “A least a €1 billion a day is now leaving Greek accounts—and about €40 billion has left since January. We are witnessing a slow bleeding out of the Greek banking system, which was provoked by irresponsible statements from both European and Greek officials, who exposed the Greek public to fears of an imminent financial collapse.”
“But at the same time,” he continues, “it’s a strange situation. We’re not really witnessing a bank run in its truest sense. There are no queues at cash machines, despite the sums that have left. You can’t really see its presence around you.”
He’s right. Despite the financial turmoil, life on the streets of Athens continues pretty much as normal. The tavernas are full as people continue to feast on souvlakia and patates (kebab and French fries). Even in Exarchia where I live, one of the city’s traditional centers of anti-government, hard-left agitation, the mood remains calm, almost happy. The smell of grilled meat and cannabis intermingle in the breeze as Greeks and immigrants mix contentedly together in the central square, talking, smoking and drinking rather than indulging their more traditional pastimes of hurling bricks and Molotov cocktails at the police.
But make no mistake: the situation is dire. If Athens does default on June 30, it could be the beginning of an exit from the Eurozone. What happens next is a lurch into the unknowable, and this prospect terrifies both Greece and its international creditors equally.
Monday, June 22, was yet one more crunch date in a crisis that has had enough to fill a calendar month since the crisis began in 2008. Greek Prime Minister Alexis Tsipras met with his country’s creditors for yet another round of talks in Brussels to try to find a way through the stalemate that has existed since his party, Syriza, took power in January. It looks as if the talks will continue until Wednesday at least.
The divide between the two sides is as clear as it has been irreconcilable. Tsipras needs the European Commission, the European Central Bank (ECB) and the IMF to release the final €7.2 billion tranche of bailout funds Greece is due to enable it to meet its June 30 repayment. For their part, the creditors want to see Greece implement another wave of new reforms, including more of the austerity measures that are destroying the social and economic fabric of the country.
Tsipras and his inner circle may be of the hard left and ideologically opposed to austerity, but they are also pragmatists. And they have been consistent in their desire to stay within the Eurozone—a view the overwhelming majority of Greeks share. A recent poll on the Greek TV channel Mega Television showed that, despite everything, 69.7 percent of Greeks wish to keep the euro.
Syriza MPs I have spoken to seem to think a compromise is possible. Alexis Metropoulos, deputy president of the Greek Parliament, told me recently that he was confident that a new memorandum could be struck between his government and its creditors enabling the ECB to release the necessary funds in time. Implicit within this statement is the acknowledgement that Greece will have to climb down further to reach some sort of agreement.
This seems to be happening. On 21 June, Tsipras made a new reforms package offer that commentators believed contained yet more concessions. Despite being hampered to a large degree by his own tough rhetoric while in opposition, he has the support not only of the Greek people, but the country’s financial sector. Louka Katseli, chair of the National Bank of Greece, the country’s largest financial institution, recently claimed it would be “insane” not to reach an agreement at the emergency talks that began Monday.
The question the country now faces is as stark as it is simple: Does it come to a deal and stave off the prospect of default and possible Grexit—for a few months at least—or does it refuse to compromise sufficiently and head toward the exit door now? If it is the former, many in Greece feel positive about the eventual result. As Baboulias points out, the Greek economy can bounce back faster than people think. “It’s summer now,” he says, “which is when most of the economy moves. Winter is dead: there’s no construction, no tourism. But on the back of a good summer—and there have been record numbers of arrivals this year—the markets can breathe a sigh of relief and rally.”
Syriza, it now seems clear, is doing whatever it can to make that happen. On Monday, Greek Economy Minister Giorgios Stathakis revealed more details about the party’s proposals, which skillfully managed to avoid crossing its red lines on reducing pensions or public sector wages by shifting the financial burden onto Greek business and the private sector. The reception from EU officials has been more positive than almost at any time since Syriza took power. European Council President Donald Tusk was uncharacteristically warm, describing the Greek package of reforms as the “first real proposals in many weeks.”
So hope remains, as it should. Because if it is the latter scenario that prevails then Greece’s problems are only just beginning. The Greek people may continue to enjoy the fruits of Mediterranean life, but they are tired. Tired of austerity. Tired of crisis. Tired of uncertainty. And this is where the danger lies.
“A chaotic break with the EU means we’re entering not only financially perilous but politically perilous waters,” concludes Baboulias. “In Greece now, sentiments that were previously long buried are rising. The ‘Red Scare,’ anti-communist narrative coming from the right is becoming part of the mainstream conversation. The hatred from civil war times [fought between communists and monarchists from 1946 to 1949] is reawakening. If it continues, this breakdown of social trust will impede any efforts to get the country back on its feet. This is the biggest danger in not achieving a deal. Forget economics for a minute. The threat to society is much more dangerous.”