In most democratic nations the central bank is independent of government control since it is recognised that monetary decisions ought to be free of party political considerations. The corollary of this is that central banks refrain from any comment on the political direction that the nation may be taking. Against this backdrop, the intervention of Greece’s central bank at five minutes (or is it seconds?) to midnight in the negotiations between the government and its creditors is as extraordinary as it is stark.
In a report which was published on Wednesday, the bank warned that: "Failure to reach an agreement would... mark the beginning of a painful course that would lead initially to a Greek default and ultimately to the country's exit from the euro area and, most likely, from the European Union".
The stance of the bank is very much in line with warnings from the European Commission and German political leaders (but goes further to warn about a potential exit from the EU itself) issued with increasing urgency in recent weeks. The bank further notes that the absence of a deal between Greece and her creditors would worsen the nation’s economic slowdown which has been gathering place since Syriza’s victory in late January. It quantified capital flight from Greece, stating that approximately €30 billion had been withdrawn from the nation’s banks between October and April.
Whilst the Greek PM, Mr Tsipras, is waiting: “We will patiently wait until creditors turn to realism. We have no right to bury the European democracy in the land where it was born,” others are warning that time is running out. In their opinion, Greece doesn’t appear to have “realised the seriousness of the situation yet” – Andreas Scheurer, Secretary-general of Germany’s CSU part told the Rheinische Post newspaper. He added: "They are behaving like clowns sitting in the back of the classroom, although they have received explicit warnings from all sides that they might fail to pass to the next grade."
Greece clearly thinks that her partners will not allow a “Grexit” since they wrongly believe that it would herald the beginning of the end for the Euro. Hopefully, the intervention of their central bank will cause them to reconsider their opinion rapidly. Without further financial support, most analysts believe that Greece would enter a sovereign default by the end of the month.