Greek citizens rush to banks to try to withdraw cash.

Greek citizens rush to banks trying to withdraw cash.

NEW YORK – Greece is on the verge of default, having failed to reach a refinancing agreement with the European Union in a series of EuroSummit negotiations last week that broke off Saturday without conclusion.

On Sunday, Prime Minister Alexis Tsipras announced banks and the stock exchange in Greece will be closed on Monday in a “bank holiday” that the governing council of ministers has recommended be extended through next week to calm down a panicked run of citizens who withdrew 1.3 billion euros ($1.45 billion) in cash from ATMs over the weekend.

The European Central Bank decided over the weekend not to increase the $100 billion in Emergency Liquidity Assistance the European Central Bank has reserved to provide Eurozone central banks, including the central bank in Greece, with the liquidity needed to keep ATMs and banks open during a financial crisis like that currently experienced in Greece.

Tsipras is pushing a national referendum on Sunday, July 5, calling for a “yes” or “no” vote regarding whether to accept the new austerity measures demanded by the international creditors, including the International Monetary Fund. But the vote could turn out to be moot, with the European Union threatening to withdraw the current refinancing deal and cut off emergency funds on Tuesday if Greece defaults, as appears likely. Greece has a 1.3 billion euro payment to the IMF due that day.

“I’m making an appeal for calm,” Tsipras said in an appeal to the nation on Sunday. “Your bank deposits are safe.”

Meanwhile, financial markets around the world are preparing for the likelihood of what in Europe is being called a “Grexit,” the exit of Greece from the euro. Without a refinancing agreement from the international creditors, including the European Union Central Bank and the IMF, Greece has no prospect of meeting the interest and principal payments scheduled on the nation’s huge 300 billion euro debt.

Solutions to the Greek debt crisis have stalemated as EU bankers have grown tired of lending Greece the money needed to make scheduled interest payments on the outstanding debt. Greek politicians have promised to raise additional government funds by hiking taxes and cutting pensions, which likely will only further depress the economy.

The “elephant in the room” turns out to be Deutsche Bank, with a $75 trillion exposure in derivatives. The amount is 20 times the gross domestic product of Germany. The bank’s complex bets on the Greek debt crisis collapse could result in a failure reminiscent of the derivatives collapse that caused the 2008 bankruptcy of Lehman Brothers, which had a highly leveraged derivative position in the collateralized mortgage market.

On Sunday, Citigroup economist Ebrahim Rahbari, the economist who coined the term “Grexit” in February 2012, advised clients in a research note that he expects the Greek referendum July 5 will result in a comfortable majority for the “yes” camp. That would eliminate the chance Greece will withdraw from the euro this year and reduce the likelihood of a Grexit in subsequent years.

Bloomberg reported Sunday that a majority of Greeks support retaining the euro, although in a country with a 25 percent unemployment rate and an economy that has contracted by a quarter since 2010, there is not a majority to support the further tax increases and government spending cuts EU creditors may demand

A decision by Greece to exit the euro would not necessarily mean a decision to exit the European Union.

Still, the financial disruption a Greek exit from the euro would cause throughout the EU likely will prompt a precipitous decline in the European stock markets Monday morning and jitters worldwide.

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