We warned last week that capital controls were inevitable [7] and it apears the first steps have been taken (very quietly):
- GREECE ISSUES DECREE: LOCAL GOVTS OBLIGED TO TRANSFER DEPOSIT RESERVES AT CENTRAL BANK
So, following the pension fund raid [8], the Greek government is now centralizing all Greek cash citing an “extremely urgent and unforeseen need.".
One wonders if this is per Krugman's advice? [9]
[10]
As Bloomberg reports:
Govt decree issued today forces local govts, general govt sector entities to transfer cash reserves to the Bank of Greece.
*DECREE ON MANDATORY CASH TRANSFER POSTED IN GOVT GAZETTE
But fear not: you are being "fairly compensated" for this forced capital reallocation:
- GREEK CASH RESERVES INTEREST AT BANK OF GREECE 2.5%: OFFICIAL
From Reuters:
Greece issued a legislative act on Monday requiring public sector entities to transfer idle cash reserves to the country's central bank, as part of efforts to deal with a cash squeeze. Greece has been tapping into the cash reserves of pension funds and public sector entities through repo transactions as it scrambles to cover its funding needs.
Monday's act excludes pension funds and some state-owned firms. Cash reserves that are needed by these bodies for their immediate payment needs are also excluded from the regulation.
Athens' scramble for basic funds shows how extreme the financial constraints on Greek Prime Minister Alexis Tsipras have become as he tries to convince sceptical foreign creditors to extend his country new financial aid.
The cash-strapped country must repay the International Monetary Fund almost 1 billion euros due next month. It has said it wants to honour its debt obligations.
And as observed previously: [7]
...if capital controls were imposed as a product of a stand-off between Greece and its creditors rather than in the context of agreement as to the way forward (as ultimately in Cyprus), Greek politics could lurch towards the need for a parallel / substitute currency rather than as hoped towards commitment to the euro at all costs.
