The crisis in Greece is unfolding so fast that new breaking updates are being published every hour. Yesterday, Greece became the first developed nation ever to default on the International Monetary Fund (IMF). Hours after Greece missed the deadline for its repayment to the IMF, European ministers will meet to discuss the Greek request for a new bailout, BBC Newsreports.
The Financial Timesreports that Greek PM Alexis Tsipras seems ready to concede on most outstanding differences between his government and its international bailout creditors. According to a leaked letter sent late Tuesday night to the heads of the country’s trio of bailout monitors, Tsipras is prepared to accept most of the economic reform proposals issued by the European Commission on Sunday.
Later on Tuesday, Greece’s Finance Minister Yanis Varoufakis indicated that the government might cancel the controversial July 5th referendum if a deal was reached, Reutersreports.
On Monday, Greece closed its banks and imposed capital controls to prevent financial chaos after the breakdown of bailout talks. Cash withdrawals at ATMs will be limited to 60 euros ($66) until further notice, and transfers abroad will be forbidden. Greece is the second Eurozone country, after Cyprus in 2013, to impose capital controls.
Though currently it appears that a mutually acceptable, negotiated solution to the Greek crisis might be found, the events of the last few weeks might leave indelible shadows in Europe and elsewhere. In particular, citizens might lose their confidence in the ability of their governments to manage the economy. There are also indications that the fear of capital controls may be spreading from Greece to Italy and other neighboring countries.
The introduction of capital controls in Greece is likely to push people in Europe and elsewhere, not only wealthy investors but also ordinary people, to the conclusion that governments and banks shouldn’t be trusted with their hard-earned savings because they can cut access to their bank accounts anytime. They may then start looking for alternative ways to store their savings, out of reach of predatory central banks.
The Wall Street Journal reports that Europeans are seeking shelter in gold and bitcoin, and the price of both is rising as a result.
Fred Ehrsam, a co-founder of bitcoin exchange Coinbase, said that in the last 48 hours following the breakdown of bailout talks between the Greek government and its creditors, his company’s exchange service has seen a 300 percent rise in Europe. Coinbase announced on its blog that it would charge zero fees for bitcoin purchases with euros this week.
Last week Coinbase saw 35 percent more activity from Greeks, which could have been much higher if the banks had been open. According to Ersham, “Europeans, especially those in the periphery countries whose abilities to finance their governments are dependent on help, are starting to take notice of what can happen to the money you thought you had in your bank account.”
The Wall Street Journal notes that in the meantime, many people in the United States are rushing to gold, according to Terry Hanlon, president of Dillon Gage Metals. Hanlon said that retail investors have been influenced by the images of bank lines in Athens far more than by concerns about monetary policy in the U.S.
“It’s a lot easier to relate to the idea that you could be standing in line and then hear your bank say it is closed and, sorry, you’re not going to get your money,” he said.