One way Greece can keep its banks alive: impose capital controls

By Yalman Onaran

An outflow of deposits from Greek banks will put pressure on the government to limit how much money people can withdraw or transfer outside the country as European Union nations lose patience with providing a lifeline.

Imposing capital controls, as Cyprus did two years ago when its banks faced a crisis, would buy time for Prime Minister Alexis Tsipras's government to negotiate debt relief, according to economists including Daniel Gros, director of the Centre for European Policy Studies in Brussels.

"Capital controls may be the only option to stop the bleeding in the banking system," Gros said in an interview.

The European Central Bank told Greece Wednesday that its banks can no longer use their nation's government bonds as collateral to access direct ECB funding. While the Frankfurt- based central bank said Greek banks are able to borrow indirectly through their own central bank for now, talks between Greece and euro-area countries could drag on for months.

Finance Minister Yanis Varoufakis said the government will present a detailed proposal for a debt swap by the end of February, when the current bailout agreement expires, and seek to reach a deal by June. Germany expects negotiations to continue through April or May, a person with knowledge of the matter said this week.

Deposit flight

Greek banks probably lost about 21 billion euros ($24 billion) of deposits in the past two months, or 11 percent of the total as of the end of November, according to the ECB and estimates last week by JPMorgan Chase & Co.

Depositors are withdrawing money now because they're worried a refusal by the government to extend the bailout when it expires at the end of the month...