![The [Greek] European Tragedy](http://3.bp.blogspot.com/-OSMAuv1xvEY/UUpsO5__BaI/AAAAAAAABsg/DZGqo9w12Ek/s920/GkBack_new.jpg)
By Mehreen Khan, & Matthew Holehouse in Brussels 28 June 2015
Euro plummets to eight-year low as government is forced to back down and implement draconian bank holiday after ECB freezes funding
An anti-austerity protester burns a euro note during a demonstration outside the European Union (EU) offices in Athens today Photo: Reuters
Markets were poised for their worst period of turmoil since the height of the Eurozone crisis four years ago, after Greece temporarily shut down its banks and suspended trading on its stock market, putting the country on the perilous path of a banking collapse and the issuance of a parallel currency.
Members of left wing parties hold placards that read in Greek: ''There is no future in the European Union'' during a protest in Athens
The Greek government announced it would be imposing capital controls and enforced bank holidays following a drastic decision by the European Central Bank to freeze the life support it had been drip feeding banks for the last five months.
• The problem with Greek capital controls
Athens main stock index will also remain closed from Monday, as Greece hurtles towards the final stages of a traumatic five-year euro crisis.
The euro tumbled by more than 1.5pc against the dollar in early Asian trading and futures markets pointed towards heavy falls on Wall Street on Monday.
Perceived "safe havens" such as government bonds and the Swiss franc are set to see fresh inflows as investors fret over what may result in a fatal rupture of monetary union.
The Greek government is now all but certain to default on a €1.6bn loan to the International Monetary Fund on Tuesday and will also see its €240bn bail-out expire at the end of the day.
In his second televised address in three days, Greek prime minister Alexis Tsipras said he had taken the measures after the country's lenders had attempted "to stifle the will of the Greek people."
He added that all bank deposits would remain "completely safe" during the transitionary period and urged Greeks to show "patience and composure".
"It is clear that the objective of the Euro group's and ECB’s decisions is to attempt to blackmail the will of the Greek people and to hinder democratic processes, namely holding the referendum," said the prime minister."
"They will not succeed."
Greece has been in the throes of a slow moving bank run after snap referendum was called for Sunday July 5.
More two-thirds of the the country's cash machines ran dry this weekend after Greeks rushed to withdraw their savings. Bank deposits have now fallen to an 11-year-low.
The bank holiday should allow the financial system to stay afloat at least until the vote is held and are likely to re-open on July 7. Cash machine withdrawal limits are set to stand at €60, according to Greek media.
In a sign of the contagion fears that will now ripple across Europe, Macedonia's central bank ordered all of its banks to pull their deposits from the country.
Greece is now careering down a path of a disorderly exit of the Eurozone, which could result in the issuance of an alternative currency as early July, said Chris Scicluna, head of economic research at Daiwa Capital Markets.
With the government all but bankrupt, "public sector workers and pensioners might well have to be paid with IOUs as soon as end-July," said Mr Scicluna. "That would likely represent the first steps to issuing a parallel currency."
• Greece just days away from fatal Eurozone rupture
• How the ECB became the real villain of Greece's debt drama
The decision to impose the draconian measures came after the European Central Bank froze the level of emergency liquidity (ELA) it is providing to keep the financial system afloat on Sunday.
This funding, which is the last remaining financial link between Greece's banks and the Eurozone, stands at around €89bn, but has been burnt through at record rates as Greeks have amassed outside ATMs.
The ECB could go further on Tuesday and announce it will withdraw ELA all-together as the country's bail-out programme officially expires.
Should the ECB take the nuclear option, it would be evidence that "Europe has failed,” said Greek finance minister Yanis Varoufakis.
"It has failed in its duty to preserve in parallel a democratic process and a monetary union. It should be a union whose banks are guaranteed by a central bank doing what it can to keep people’s deposits accessible to them."
Mr Tsipras said on Sunday he had requested once again that the Troika extend the bail-out for another month.
Capital controls would not effect tourists or foreigners using cash machines in the country, said the government.
The recent decisions of the Eurogroup & ECB have only one objective: to attempt to stifle the will of the Greek people. #Greece
Mr Varoufakis said before the decision, he was fundamentally opposed to carrying out draconian Cypriot-style controls.
"Capital controls within a monetary union are a contradiction in terms. The Greek government opposes the very concept," Mr Varoufakis said on Twitter.
Yanis Varoufakis @yanisvaroufakis
Capital controls within a monetary union are a contradiction in terms. The Greek government opposes the very concept.
The Greek government declared the controls after meeting with the Bank of Greece and the country's financial stability board. Greece's central bank governor will now spend the night with the heads of the country's banks to begin implementation from Monday morning.
With events having spiralled out of control this weekend, Washington again intervened to urge Greece’s creditors to finally provide the country with some form of debt relief as part of any new rescue package.
Treasury secretary Jack Lew echoed the IMF’s Christine Lagarde, saying it was "important for all parties to continue to work to reach a solution, including a discussion of potential debt relief for Greece.”
The question of an alleviation of Greece’s 180pc debt mountain has been absent from the country’s current negotiations, with European creditors insisting it was a matter only to be addressed once Greece signs up to a package to cut spending and hike taxes.
Mr Varoufakis said he was thrown out of talks with finance ministers on SaturdayThe ECB said it stood "ready to reconsider its decision" on ELA. "The ECB will work closely with Bank of Greece to maintain financial stability," said a statement.
Mario Draghi, ECB president, said: “We continue to work closely with the Bank of Greece and we strongly endorse the commitment of Member States in pledging to take action to address the fragilities of euro area economies.”
Capital controls were last seen in the Eurozone in Cyprus in 2013. The move came after the ECB threatened to pull the plug on the country's banks unless the government submitted to a bail-out package.
Once implemented, capital controls are difficult to remove. Cyprus only began shaking off its control measures last month, while Iceland is only returning to free capital movement seven years from its crisis.
The introduction of capital controls could now harden Greeks against European authorities, pushing them towards a ‘No’ vote in next weekend’s referendum.
It “would likely mark a first step towards Grexit as there is no indication that the Troika stands ready to offer Greece a better deal,” said Michala Marcussen of Societe Generale.
Alexis Tsipras @tsipras_eu 