Greece in deep crisis with dwindling cash reserves, staff layoffs

A woman withdrawing money from an ATM in Athens on Thursday as police monitored a nearby demonstration supporting the "no" vote for tomorrow's referendum on a European bailout package.
A woman withdrawing money from an ATM in Athens on Thursday as police monitored a nearby demonstration supporting the "no" vote for tomorrow's referendum on a European bailout package.PHOTO: AGENCE FRANCE-PRESSE

The Greek economy has gone into free fall with bank cash reserves dwindling fast, companies laying off staff, and food and pharmaceutical shortages emerging.

The head of Greece's banking association said the country's banks have a "liquidity cushion" of €1 billion (S$1.5 billion) but that funds beyond Monday would depend on the European Central Bank, Reuters reported.

The country has entered crisis mode as rival camps prepare to hold major rallies in Athens ahead of tomorrow's referendum that may determine the country's future in the euro zone.

Greek Prime Minister Alexis Tsipras went on national television yesterday citing an International Monetary Fund (IMF) report that said the nation's debt will need to be cut by 30 per cent with a 20-year grace period for payment in order to be sustainable.

The country's five-year economic nightmare intensified on Tuesday when the government defaulted on a €1.55 billion loan to the IMF - the first developed nation to do so.

The country's European bailout programme also expired on Tuesday, leaving Greece without external financial assistance.

The government responded by shutting down its financial system, including its banks and stock exchange, but that has only added to the turmoil. ATM withdrawals, previously capped at €60 per Greek citizen, have now been reduced to €50, apparently because €20 notes are running out.

Greek voters will be asked to vote either "yes" to a bailout package offered by creditors in exchange for tougher austerity measures, or "no" in support of the leftist government's bid to gain better terms from creditors.

Euro membership is not officially on the ballot, but Germany and other European leaders have warned that voting to reject the bailout is tantamount to agreeing to leave the euro and perhaps the European Union. Greece's creditors are insisting that the country impose severe tax hikes and pension cuts to secure much-needed loans.

Speculation is swirling that Greece might be forced out of the euro and have to print its own money after the referendum, although its finance minister on Thursday said the country no longer had the presses to produce drachmas.

The IMF said on Thursday that Greece will need an extra €50 billion over the next three years to stabilise its finances. It also cut its forecast for Greek economic growth from 2.5 per cent to zero.

Analysts say the Greek referendum appears too close to call.

Even if Greek and European leaders manage to agree on a temporary bailout at negotiations this weekend, it will take much longer to overhaul Greece's economy and keep its government from insolvency.

The Guardian daily quoted the head of the National Confederation of Hellenic Commerce, Mr Vasillis Korkidis, as saying: "Imports, exports, factories, firms, transport, everything is frozen. The only sectors in demand are food and fuel."

Regardless of tomorrow's outcome, there is unlikely to be an immediate resolution to the crisis, said UOB economist Lee Sue Ann. "There will be paths to exiting the euro, just as there are to a new bailout," she added.

A version of this article appeared in the print edition of The Straits Times on July 04, 2015, with the headline 'Greece in deep crisis with dwindling cash reserves, staff layoffs'. Print Edition | Subscribe