Greece To Impose Capital Controls Amid Looming Default

Transcript

RENEE MONTAGNE, HOST:

Greece has a big loan payment due tomorrow. It does not have the money, and without another European bailout, Greece will finally default. For months, Europe has said it won't extend more financial help unless Greece plunges even deeper into austerity by cutting spending and raising taxes. Now the Greek government has thrown that decision to its citizens in a surprise call for a referendum on Europe's demands. Let's get an update from our reporters covering this crisis. Joanna Kakissis is in Greece, and NPR's Soraya Sarhaddi Nelson is in Germany.

Good morning to you both.

JOANNA KAKISSIS, BYLINE: Good morning.

SORAYA SARHADDI NELSON, BYLINE: Good morning, Renee.

MONTAGNE: Joanna, let's begin with you and what exactly is happening in Greece today.

KAKISSIS: Well, you know, the banks are closed and the stock market is closed, and there are capital controls, which means there are limits on what you can withdraw from banks. They were imposed by the Greek's central bank last night because there were serious fears of a bank run. This all started on Friday when the Greek government called a referendum, a public vote, on the bailout negotiations that were happening. Those abruptly broke off when the Greeks and the eurozone and International Monetary Fund could not agree on what the deal actually was. But the problem was the timing. The vote is set for July 5, but Greece's bailout program ends tomorrow. That's the same day as a debt repayment to the IMF is due, and Greece doesn't have the cash to pay, so it faces default. This just really freaked people out, and Greeks emptied cash machines this weekend because they were fearing the worst.

MONTAGNE: It seems as if the Greek government has just punted here though, I mean, it's got this hard deadline and then it says, let's have a referendum in a week.

What does this all mean?

KAKISSIS: That's a good question. It's a true, many Greeks actually do feel like this government is passing on the hard decisions to them. They're basically saying, why are you chickening-out when I elected you to make the tough decisions?

But from the government's perspective, what they were trying to do is to improve their negotiating position with the IMF and the eurozone. They were very unhappy with the insistence to increase hotel taxes and cut pensions, and they said, OK, we've given you everything and you won't even give us a little bit, so we're just going to blow everything up. The other thing is that the government doesn't feel like they have a popular mandate on austerity and on this bailout, and so what they wanted to do is to ask Greeks to own the reforms and to own even the austerity. That's the idea of the referendum, but at least in these first few days, it's backfired because European leaders feel blindsided and betrayed, then they already don't trust this government. And this is a really complicated issue to put to voters. Some Greeks don't even understand what they're supposed to be voting on.

MONTAGNE: OK, Joanna Kakissis. Let's turn now to Soraya Sarhaddi Nelson in Germany.

What about it, what is the reaction to this sudden referendum?

NELSON: Well, Chancellor Merkel is enjoying unprecedented support. I mean, all German factions, with the exception of the Left Party, are siding with her on this. They feel the ball is in Greece's court, that Athens has betrayed them basically. And her foreign minister, Frank-Walter Steinmeier, who's with the Social Democratic Party, which in the past has sided with Greece and has often criticized Merkel's demand for austerity measures over stimulus, and he's saying he's just stunned by Athens's behavior, and he fully blames them for the negotiations falling apart. And at the same time, the German public - which has always been relatively sympathetic - for the first time, a majority are saying, goodbye Greece, you know, get out of the euro, we don't want this anymore.

And it's a bit short-sighted perhaps because there are a lot of economic repercussions - and not just for Greece, but for the eurozone if Greece were to stand out. And as much as Chancellor Merkel and the other eurozone ministers don't really want Greece to leave, they are answering to their publics now.

MONTAGNE: Well, as bad as it might be for Greece, what might happen to the euro - for the rest of the eurozone - if Greece does in fact exit?

NELSON: Well, analysts I've spoken to, they say that it will weaken it at least for the short term significantly because I mean, we're talking about banknotes, we're talking about loans, we're talking about bonds that total about $200 billion that will go into default or that will no longer be worth anything and that the other eurozone countries will be left to hold the bill. The other issue is that if one goes then it's going to be easier for others to walk out should they face hard times. The feeling is that if Greece is allowed to get away with it, rightly or wrongly, that this is just going to open the door for everyone else to leave at some point and that this could be the beginning of the end of the euro.

MONTAGNE: Saraya Sarhaddi Nelson speaking to us from Germany, and Joanna Kakissis speaking to us from Greece, thank you both very much.

NELSON: You're welcome.

KAKISSIS: Thank you. Transcript provided by NPR, Copyright NPR.