REPORT: The ECB wants Greece to impose capital controls

ECB chainREUTERS/Johannes EiseleAttac anti-globalisation activists demonstrate in front the euro sculpture in front of the European Central Bank (ECB) headquarters in Frankfurt, September 24, 2009.

According to Frankfurter Allgemeine Zeitung (FAZ), one of Germany’s biggest papers, the European Central Bank (ECB) is pushing for Greece to introduce capital controls.

If it’s true that’s a massive deal. Capital controls would mean investors and ordinary bank deposit holders in Greece would have the amount they can remove immediately drastically reduced. Such controls were introduced in Cyprus during its 2012 financial crisis.

This could be a massive market-mover this morning. Generally, when capital controls are brought in, it’s meant to be a surprise. It doesn’t work so well if everyone knows ahead of time.

Credit ratings agency Fitch had this to say on the subject yesterday:

“Rising funding and liquidity risks led us to put four Greek banks on Rating Watch Negative on 10 February. This reflected our view that difficult negotiations would prompt further deposit outflows that could trigger capital controls, particularly if access to emergency funding were restricted by the European Central Bank.”

The ECB approved a higher cap on potential emergency assistance for Greek banks yesterday, raising the figure from €65 billion to over €68 billion.

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