Greek bank reserves are being rapidly depleted, which could plunge the over-indebted country into economic collapse.
As creditors stopped funding the Greek banks, the country’s banking system has been facing a severe liquidity crisis. Even with the 60 euro (USD$66.00) daily withdrawal limit, bank machines are running dry.
“We are reliably informed that the cash reserves of the banks are down to 500 million euros (USD$550 million),” said Constantine Michalos, head of the Hellenic Chambers of Commerce. “Anybody who thinks they are going to open again on Tuesday is day-dreaming. The cash would not last an hour.” (Source: The Telegraph, July 2, 2015.)
People in Greece have been struggling over the week after banks shut their doors on Sunday. With a daily withdrawal limit of 60 euros (USD$66.00) at bank machines, individuals are having a hard time getting by.
If banks do not open, analysts believe economic activity will come to a halt. People will not have enough money for daily activities such as rent, utilities, or groceries. Businesses will not be able to pay for their supplies or their employees.
Greece is scheduled to hold a referendum on Sunday July 5th. The bailout referendum asks Greek citizens whether to accept the terms proposed by the country’s creditors.
If the country gets a “Yes” vote from its people, then Greece is likely going to get a bailout program. At the same time, it will probably cut wages and pensions as the lenders demand. Whether austerity will work in a contracting economy remains to be seen.
If the Greek people vote “No,” then it would be very likely to see the country exit the eurozone. Greece would also likely be forced to default on its upcoming 3.5 billion euro payment to the European Central Bank due July 20th.
A “No” vote could also bring back the drachma, Greece’s old currency. However, exiting the currency union would be a difficult path. Either way, without funds (euros or not) pumping into the banking system, Greece’s economic system will soon be dead.