ATHENS - Jittery housewives, shoppers and business owners queued in vain at cash machines yesterday, as the country grappled with capital controls and shuttered banks on what has been dubbed "Black Monday".
For a country used to dealing largely in cash, Prime Minister Alexis Tsipras' decision to close banks for seven days and limit withdrawals to avert the collapse of its financial system has unnerved Greeks.
Optimism of a breakthrough in talks between Athens and its creditors had vanished after Mr Tsipras called for a referendum just days before today's deadline on repayment of International Monetary Fund (IMF) loans, pushing Greece towards a likely default on a €1.6 billion (S$2.4 billion) debt repayment and closer to an exit from the currency bloc.
In a rare emergency press conference in Brussels yesterday, European Union chief executive Jean-Claude Juncker urged Greeks to back a cash-for-reform package rejected by their government, saying a "no" vote in the July 5 referendum would mean Greece was turning its back on the EU. "A 'no' would mean, regardless of the question posed, that Greece had said no to Europe," Mr Juncker said, complaining of feeling "betrayed" by the leftist government's behaviour and adding that it was time for it to tell voters "the truth".
"Playing off one democracy against 18 others is not an attitude which is fitting for the great Greek nation," Mr Juncker said.
Mr Tsipras, who promised to return "dignity" to the people and rejected Budget cuts imposed by creditors, imposed the capital controls in the dead of the night. The measures limit daily cash withdrawals to €60 and ban payments and transfers abroad. The stock market and banks will be closed at least until next Monday, the day after Greeks vote in the referendum on proposals needed to restore bailout aid.
Financial markets around the world reacted badly to the seemingly inevitable default. Greece's wary neighbours took measures to protect their banks and economies from the escalating financial crisis there. Central banks in Macedonia and Serbia introduced extra restrictions on the movement of capital between local subsidiaries and their Greek parents. Albania, Bulgaria and Romania also quarantined local banks by cordoning off their capital.
Chinese Premier Li Keqiang promised the EU it would hold on to its euro zone debt, Chinese state media reported, saying the Greek debt crisis was Beijing's problem too. India's Finance Secretary Rajiv Mehrishi said it is monitoring developments but does not have a firm plan to deal with any significant fallout.
The developments marked an abrupt turn from last week, when markets rallied on hopes a deal between Greece and its creditors - the European Central Bank, European Commission and IMF - was at hand. German Chancellor Angela Merkel and French President Francois Hollande signalled they have reached the limits of their ability to safeguard Greece, offering the government no further concessions. Dr Merkel played down prospects of a breakthrough in the coming days, but said she stood ready to restart talks with the Tsipras government after Sunday's referendum.
What capital controls mean
What are capital controls?
Measures that prevent individuals and businesses from moving their money around freely.
What controls did Greece impose?
Greek banks to stay shut until at least next Monday. Cash withdrawals from ATMs limited to €60 (S$90) a day for this period. Overseas transfers of cash prohibited, except for vital, pre-approved commercial transactions.
Foreign tourists, a vital engine of the Greek economy, will be exempt from the restrictions.
Why impose capital controls?
The measures are aimed at preventing euros from flowing out of Greek banks - into overseas banks, being converted to different currencies, or being stashed under the mattress.
Since last Friday night alone, €1.3 billion has been withdrawn from Greek banks.
What will be the economic fallout?
The Greeks will have less money to spend and businesses, less to invest; so an already weak economy will probably return to deep recession. The fallout could spread to other weaker euro zone economies as investors wonder if their money will be safe there.
British Prime Minister David Cameron was to chair a top-level meeting with senior ministers to discuss the government's contingency planning over the crisis.
Meanwhile, stunned Greeks were struggling to cope. "I've got €5 in my pocket," said plumber Yannis Kalaizakis, 58, outside an empty cash machine in central Athens. "I don't know what else to say. It's a mess."
Another Athens resident, Ms Evgenia Gekou, 50, said she is trying hard not to worry. "I keep thinking we will wake up tomorrow and everything will be OK."
REUTERS, AGENCE FRANCE-PRESSE