The Greeks have spoken. After an overwhelming vote against austerity in a national referendum on Sunday, the debt crisis has entered a new phase of uncertainty. This is compounded by the surprise resignation of Greek finance minister Yanis Varoufakis, well known for not getting on well with European creditors. Since 2008, the Greeks have often sent mixed signals at the polls and in meetings with creditors. That said, the onus to find a solution to this crisis is now squarely on European lenders.
Given the depth of Greek debt, one solution to the crisis is significant debt restructuring and even debt relief, as this newspaper and the International Monetary Fund argued last week. At this point, the European Union and individual member states are only hurting themselves by delaying serious negotiation on this evitable part of the crisis’s solution. But there is a more pressing issue to consider in the interim, while leaders across the continent debate steps forward and everyone seems to be at a loss for what is going to happen next.
The European Central Bank must continue to provide emergency funds to ensure that Greek banks don’t run out of cash. As it stands, Greece has roughly €1 billion (Dh4bn) – €120 (Dh487) for each citizen – in cash reserves. Without continued ECB emergency funding, the Greek banking system could go down in flames as early as today, when banks are scheduled to reopen.
The ECB and the EU have a moral responsibility to continue to provide this essential liquidity support. Given the fact that Greek banks are not yet insolvent and continue to hold assets, albeit limited ones, there is no excuse for a cut in this support in the short term.
For its part, the ECB doesn’t want to see the Greek banking system collapse before arrangements can be laid down for the scenario in which the country exits the euro. There are a number of simple measures that can be put in place right away by the ECB, including a fresh 30-day credit line that will allow the banks to reopen while talks occur on whether Greece will stay in the eurozone.
If the ECB decides to stop supporting Greece because it feels there is no partner in Athens, the banks will run out of money and chaos would engulf the country. This must not happen and it is now Europe’s turn to find an equitable solution to this crisis.
