The European Central Bank is pushing for capital controls on Greece to stop its crippled banks haemorrhaging cash, it has emerged.
The ever-closer prospect of restrictions on money flowing out of the nation – an anathema to the European Union’s principles of free movement of capital – came as Greece’s far left Syriza leadership submitted plans for a six-month “loan extension” before its €240 billion (£178 billion) bailout expires at the end of February.
Capital controls were introduced two years ago in a bailout for Cyprus, but in Greece it would be on a much bigger scale to stem the billions in deposits pulled out of its banks since the end of last year.
German newspaper reports quoted ECB sources saying the central bank and banking supervisor “would be more comfortable with capital controls to prevent the banks bleeding (money).”
The ECB approved a small extension to its emergency liquidity assistance yesterday from €65 billion to €68.3 billion.
The risk of this more expensive funding sits on the balance sheet of Greece’s own central bank. The ECB could turn off the tap if Greece exits the bailout without another deal.
But Athens denied it was considering capital controls to stem bank deposit outflows.
A government spokesman said: “Evidently, one day after the extension of the ELA and at a moment when we are closer to a mutually beneficial solution, one wonders about scenarios (of capital controls) that have no bearing on reality.”
Greek shares were flat as investors awaited the details of finance minister Yanis Varoufakis’ last-minute compromise proposal from Athens to break a deadlock with European creditors over the country’s frozen bailout programme.
Greece said it was doing everything it could to “reach a speedy and mutually acceptable deal”.
