Greek citizens awoke this morning to their country being one step closer to bankruptcy. Yesterday, following weeks of intense speculation, Greece finally launched its first round of capital controls, when it declared that due to an “extremely urgent and unforeseen need”, it would be “obliged” to transfer (i.e. confiscate) “idle cash reserves” located across the country’s local governments (cities and municipalities) to the Greek central bank.
As can be imagined the response by ordinary Greeks was less than exuberant as they realize now what the endgame is.
Bloomberg reports, that “as Greece struggles to find cash to stay afloat, local authorities say they oppose a government decision to use their reserves for short-term financing.”
“The government’s decision to seize our reserves not only raises legal and constitutional issues, but also a moral one,” said George Papanikolaou, the mayor of Glyfada, the third-largest municipality in the metro area of Attica. “We have a responsibility to serve our citizens,” Papanikolaou said by phone on Monday. Glyfada has about 16 million euros in cash reserves, he said.
As local mayors, treasurers and other elected officials who see the bank accounts of their municipalities awake this morning they will find there is precisely zero euros in their accounts, as all the money has now been forcibly moved to the federal government in order to repay IMF obligations.
Unfortunately for Greece, this is the only option left as the money has now fully run out. Greek Prime Minister Alexis Tsipras ordered local governments and central government entities to move their cash balances to the central bank for investment in short-term state debt.
“It is a politically and institutionally unacceptable decision,” Giorgos Patoulis, mayor of the city of Marousi and President of the Central Union of Municipalities and Communities of Greece, said in a statement on Monday.“No government to date has dared to touch the money of municipalities.”
It took the radical leftist party all of 2 months since coming to power.
What makes this deeply troubling is that the use of confiscated proceeds is unclear: the government says it is to pay pensions and wages, yet the same government recently confiscated pensions to repay the IMF, so according to the chain of logic, the government first raided pensions, and now municipalities, just to repay the dreaded IMF.
Once everyone realizes what just happened expect protests and riots to flare up. While they have been quiet since 2012 this confiscation will have dire consequences for the Greek people and the weak Syriza government. Expect things to rapidly become more volatile in the coming weeks.
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