Cabinet draws up strategy in case of Greek euro exit

The Government is stepping up contingency plans for the possibility of Greece leaving the euro after a chaotic breakdown in debt talks led Athens to close banks indefinitely and impose capital controls.

The increasing risk of a “Grexit” will be discussed tonight at the Economic Management Committee, the powerful Cabinet subcommittee at which Taoiseach Enda Kenny directs the thrust of policy with Tánaiste Joan Burton and Ministers Michael Noonan and Brendan Howlin.

The Government believes there would be no major “first round” impact on Irish interests from a Greek default and departure from the euro. However, it is exploring potential medium-term and long-term consequences.

Irish banks have no direct exposure to Greece. Although Moody’s credit rating agency has warned that banks in countries such as Ireland remain vulnerable to an exit, the reliance of Irish banks on inter-bank lending has diminished as they are largely funded by deposits.

Uncertainty over the fate of Greece reached new heights over the weekend as premier Alexis Tsipras called a snap referendum next Sunday on funding proposals from creditors and promised to campaign against them.

Bailout programme

This prompted euro zone finance ministers to withdraw their proposal and declare that the current bailout will end on Tuesday. Athens cannot pay a €1.6 billion debt to the IMF on Tuesday without more money from creditors.

As Greeks took to the streets to withdraw money from ATMs, the European Central Bank said yesterday that it would not increase almost €90 billion in emergency aid for the country’s banks.

The Tsipras administration followed these developments with the announcement of a bank holiday for an unspecified time and restrictions on withdrawals. One report said withdrawals would be limited to €60 per day.

Mr Tsipras said the move came on foot of a recommendation from the Bank of Greece and he blamed European creditors and the ECB for forcing the country’s hand. However, he insisted the referendum will go ahead.

He did not give details on how long banks would be shut or on the restriction on the movement of capital.

German chancellor Angela Merkel and French president François Hollande are to hold crisis talks with their cabinets on Monday. Dr Merkel held emergency talks last night with US president Barack Obama.

Greek finance minister Yanis Varoufakis tells the German tabloid Bild today that Athens "remains open for new proposals", once they are "significantly better" than those already on offer.