TIME Money

Could You Live on $64 a Day If Greece’s Crisis Happened Here?

Imagine if Greece's capital controls were imposed in America

Greece’s banks remained closed on Monday for the sixth straight working day, heightening anxieties over the nation’s cash withdrawal and transfer limit of €60 ($67) per day per account.

What if those same capital controls were imposed in America? As shown in the chart above, our budgets would need a significant downsizing — by over 50%.

It’s true that credit or debit card transactions — for some, the primary mode of payment — aren’t affected by the rules. But many day-to-day Greek businesses and services, like restaurants, have begun demanding cash payments. Other Greeks have found even their credit cards are being rejected with confusion surrounding the capital controls. As a result, for many account holders, it’s truly a $67 per day limit: $67 for food, housing, healthcare and transportation, often to support a family of several people (We should note that some Greek public transportation has been free during the capital control period).

According to the U.S. Bureau of Labor Statistics’ most recent report on U.S. consumer expenditures, American households spent an average of $140 per day in 2013. Indeed some of these costs could be eliminated more easily, like leisure ($6.80) and cash contributions ($5.02). But Americans’ three highest daily costs — housing ($49.98 per day), transport ($24.67) and food ($18.09) — aren’t just harder to cut down on, but also far above the $67 limit already.

Read next: Why Greece Matters for Everyone

TIME Economy

Why Greece Matters for Everyone

Like it or not, Greece is a domino that will have ripple effects throughout the rest of the world

Greece is a tiny country. It’s 0.3 % of the GDP of the world. Most private creditors took their money out of the debt-ridden nation years ago. So why is the possible exit of Greece from the Eurozone rocking markets? Because it represents what could be the end of the biggest, most benevolent experiment in globalization, ever.

On Sunday, Greek voters said “no” to Europe’s latest bailout offer. That means that a Greek exit from the Eurozone is now very likely–most analysts are putting the odds at somewhere around 60%-70% at this point. For Greeks, the next few weeks will be chaotic. Banks are closed; last week, people could take only 60 euros at a time out of ATM machines, this week it may go to as little as 20 euros. Merchants have begun eschewing credit cards in favor of hard currency as a cash hoarding mindset kicks in.

Global markets are not surprisingly down on the news and will likely be quite jittery for the next few weeks. It’s not that the economy of Greece itself matters so much–China creates a new Greece every six weeks–it’s that a Greek exit from the Eurozone calls into question the entire European experiment. Europe was always an exercise in faith: 19 countries coming together to form a made-up currency without any common fiscal policy or true political integration seemed like a great idea in good times, but was destined to be fragile in bad times.

MORE: Here’s What Greek Austerity Would Look Like in America

The risk now is that a chaotic Greek exit from the Eurozone starts to undermine faith in other peripheral countries, like Italy or Spain. Watch what their bond spreads do over the next few days. If they rise a lot, it means investors are worried. While ECB head Mario Draghi has promised money dumps to help stabilize these nations and any other Eurozone countries that need help (perhaps we should start calling him “Helicoper” Mario), he can’t stop the euro from falling against the dollar, or keep investors from fleeing to “safe havens” like US T-bills. That might be good for US bond markets, but Europe’s crisis could also impact the Fed’s ability to raise interest rates in September, which until quite recently seemed like a sure thing.

No wonder President Obama and Jack Lew are getting vocal about it all–while this isn’t going to be a Lehman Brother’s style domino collapse of financial institutions (private creditors represent only about 12 % of Greek debt; most got their money out back in 2011 or 2012), there’s little question that Europe’s growth will slow, which will affect US companies and workers. The stronger dollar will also hurt US exporters.

But even more important than the short-term jitters are the longer-term economic and geopolitical impacts of the Eurozone crisis. One of the reasons that Russia has been so aggressive in places like the Ukraine is that Europe is perceived as being weak, unable to make the political integrations that would actually solve this debt crisis permanently. (That would require creating a real United States of Europe–something that requires German buy in.)

MORE: Greece Says ‘No’ to Austerity

The Greeks may think that a “no” vote to Europe has increased their power to bargain for a third bailout, but I think it will be very hard to convince German voters of that (and any deal will have to pass through the Bundestag). Germans simply don’t understand why the rest of Europe can’t be more like them, despite the fact that the math doesn’t really work.

If Greece is left on its own, where will it turn for support? To Russia, China, and any number of countries in the Middle East. Suddenly, you’ve got the stability of the Balkans in play. And as it becomes clear that the future of the world’s second largest reserve currency isn’t necessary a given, that could weaken investment in Europe as a whole, throw the Eurozone back into recession, and undermine the EU on the world stage. A political bloc that can’t guarantee its own currency will also have reduced clout in any kind of political negotiation. Europe’s weakness could be very destabilizing at a time when America’s own geopolitical power has ebbed.

That’s bad news for everyone. Europe is one of the three legs of the global economic stool, along with the U.S. and China, which is in the middle of its own debt crisis. America’s recovery isn’t strong enough to pull the world along. Europe’s debt crisis is not only an economic crisis but also a political crisis–one that poses challenges not just the EU itself, but liberal democracy as the model of the future.

MORE: Greek Finance Minister Resigns

TIME Greece

Everything to Know About Greece’s Debt Vote

It could have serious consequences for Europe's future

Q. Why and when are the Greeks voting on this referendum?

A. The Greek government called the referendum because it failed to get acceptable terms for debt relief and further assistance in four months of negotiations with the creditors. It felt it couldn’t agree to the last set of proposals received before the expiry of its bailout, because they couldn’t square it with their election promise to end austerity.

The referendum will be on Sunday, 5th July.

Q. So what are the Greeks actually being asked to vote on?

A. They’re being asked to vote on a set of proposals drafted by IMF, ECB and European Commission officials that were never formally completed or published.

This is the actual ballot. As you can see, the “No” (OXI) option, recommended by the government, is above the “Yes” (NAI) option.

Screen Shot 2015-07-02 at 16.14.12

For the non-Greek readers, (or for those who only know ancient Greek), here’s a translation:

Screen Shot 2015-07-02 at 16.18.50

The two documents referred to can be found here and here (debt sustainability analysis).

Q. What are the key points?

A. The most contentious demand is that Greece squeeze another 1% of GDP in savings out of its battered pension system, specifically by eliminating top-ups that have been desperately needed by poorer pensioners to keep themselves above the breadline in recent years. The other big point is the elimination of VAT exemptions for Greece’s islands. The government argues this threatens the existence of the tourism industry on the islands.

The DSA, meanwhile, almost–but not quite–brings itself to admit that the debt load is unsustainable. If Greece adopts and implements the conditions immediately, it says, then the debt-to-GDP ratio could fall to 124% by 2022 from over 175% right now. That’s the best case scenario, and not one that sits comfortably with the last five years’ experience. It’s also not many people’s idea of sustainability.

Q. What happens if Greece votes ‘Yes’?

A. A ‘Yes’ vote would be the first step towards a third bailout agreement for Greece (the IMF suggested today that Greece will need €50 billion, or $56 billion, in financing to get it through to the end of 2018, as well as a 20-year grace period). The last one expired Tuesday.

Q. Could the Greek government collapse?

A. Probably. It has campaigned for a ‘No’ vote, so the blow to its credibility would be huge. Its electoral mandate–to end austerity while keeping the euro–would be obsolete. Individual ministers have already said they’ll resign in that event. However, the radical left-wing Syriza party is by far the largest in parliament, a large part of its lawmakers won’t sign any new bailout deal, and there is no stable pro-bailout majority without it. That points to new elections. Quite how negotiations could resume, and quite how the banks could reopen, in those circumstances isn’t clear.

Q. If Greece votes ‘No’, what happens?

A. Prime Minister Alexis Tsipras claims that a ‘No’ vote will strengthen the Greeks’ negotiating position by showing the strength of resistance to further austerity. However, the creditors have shown no sign that it would change their position. More likely is that the continued uncertainty will make it impossible for the banks, which have been closed since Monday, to reopen. They would be immediately faced with demands for cash that they can’t possibly meet. In practical terms, the banks couldn’t open again until the bulk of their liabilities–i.e. customer deposits–had been re-denominated in a new Greek currency. This would lead to a large part of the country’s savings being wiped out.

Q. Could this vote result in Greece leaving the Eurozone?

A. Absolutely, because it would be clear that the political will to share a currency with Germany and others was no longer there. How we get from A. to B. is unclear, because there are no precedents and no provisions for it in the E.U.’s treaty. There is a provision for leaving the E.U., but not even Tsipras wants to do that.

Q. Is the bailout deal they’re voting on even still on the table?

A. Not officially, but the creditors will look stupid, merciless and irresponsible if they don’t react to a ‘Yes’ vote with something to relieve the immediate pressure on Greece’s banks and the economy at large, and a large part of the political dynamic in this process is about dodging blame for the whole mess. It’s tempting to think that, once Syriza is out of government, some form of debt restructuring will become politically possible. The creditors would rather eat dirt than reward a party, and individual ministers, that they regard as dangerous charlatans.

Q. What does this mean for the global economy?

A. A ‘Yes’ vote would remove one of the big geopolitical risks that are currently holding back investment in the Eurozone, which would be a clear bonus to global growth (the Eurozone is over two-thirds of the E.U. economy, which about 20% of world GDP).

A ‘No’ vote, could have quite mild consequences if Greece can be kept inside the Eurozone and the ECB douses the flames of market fear with a flood of liquidity. That wouldn’t be as good for the economy, but it would at least contain the damage to financial markets. But a ‘No’ vote that leads to “Grexit” is another matter. Again, one would expect the ECB to throw money at the markets to keep volatility down, but the sight of European integration going into reverse would nix a basic geopolitical assumption of the last 60 years. The resulting political uncertainty could be highly damaging for investment not only in Europe, but also further afield.

 

MONEY Jobs

U.S. Job Growth Slowed in June

The share of working-age Americans who are employed or at least looking for a job sank to the lowest rate since October 1977.

U.S. job growth slowed in June and Americans left the labor force in droves, according to a government report on Thursday that could tamper expectations for a September interest rate hike from the Federal Reserve.

Nonfarm payrolls increased 223,000 last month, the Labor Department said. Adding to the report’s soft note, April and May data was revised to show 60,000 fewer jobs were added than previously reported.

With 432,000 people dropping out of the labor force, the unemployment rate fell two-tenths of a percentage point to 5.3%, the lowest since April 2008.

The labor force participation rate, or the share of working-age Americans who are employed or at least looking for a job, fell to 62.6%, the weakest since October 1977. The participation rate had touched a four month high of 62.9% in May.

In addition, average hourly earnings were unchanged, taking the year-on-year increase to a tepid 2.0%.

TIME Economy

U.S. Unemployment Rate Drops to 5.3%

Employers Post Most Job Openings In Four Years In June
Spencer Platt—Getty Images A "now hiring" sign is viewed in the window of a fast food restaurant on August 7, 2012 in New York City.

But labor force participation dropped

The United States labor market put in a tepid performance in June, with the addition of only 223,000 jobs, according to a report released by the Bureau of Labor Statistics on Thursday.

That was short of analysts’ exceptions, which put estimates for June job growth in the 225,000 to 230,000 territory.

According to the household survey, unemployment declined to a seven-year low of 5.3% in June, after inching up to 5.5% in May.

Though the jobs report’s top line numbers were not too bad, a closely-watched sub-indicator didn’t show such good news: hourly wages remained flat in June. That stagnation could delay a long-awaited hike in interest rates. After the May jobs report showed that wages had increased by 8 cents per hour, Federal Reserve chair Janet Yellen said at a press conference June 17 that “wage increases are still running at a low level, but there have been some tentative signs that wage growth is picking up.”

Thursday’s report—released a day early because of the observation of the July 4th holiday on Friday—also showed that labor force participation dipped by 432,000 or 0.3% in June after an increase of similar size in May. The share of Americans participating in the labor market fell back from 62.9% in May to 62.6%–its lowest since 1977.

The number of long-term unemployed who’ve been without a job for 27 weeks or more declined by 381,000 to 2.1 million in June. Over the past 12 months that figure—which currently makes up 25.8% of the unemployed—has decreased by nearly 1 million.

TIME Money

We Still Don’t Have Safe and Reliable Money

bitcoin-world-coins
Getty Images

Zocalo Public Square is a not-for-profit Ideas Exchange that blends live events and humanities journalism.

If we're going to have fast, reliable online transactions, we need a system that actually works

They said it was imminent. They said so two decades ago. But I am still waiting for a truly fast, reliable, and safe form of money for people—all 7 billion of us. So many other things that were once unimaginable to us are now true: we can connect with anyone on the planet almost instantaneously—to talk, see each other over video, and send each other pictures of our cats and dogs, even kids. But if we want to move a penny, or 10 rupees, it is no longer a brave new world, not even close. It’s virtually impossible for someone to easily transfer money to another at a low cost, unless both parties are physically present at the same place and same time.

Not so, you may protest. We have Apple Pay, Paypal, Google Wallet, Mastercard, Visa, M-Pesa, Bitcoin, hundreds of alt-coins spawned by Bitcoin, all of which claim that they will dethrone good old-fashioned cash off its mantle. But not so fast. Despite all the hype around the supposedly new-fangled digital alternatives to money, these remain either expensive or inconvenient. Credit card companies charge retailers two to three percent of any transaction, which we’re all paying for in the form of higher prices, passed on by merchants. Direct withdrawals from bank accounts are cheaper, but have traditionally taken a long time to clear, sometimes as long as a day.

The drawbacks of these digital alternatives are evidenced by the resilience of cash. Eighty-five percent of all transactions globally (and 40 percent in the U.S.) are still carried out using cash, particularly transactions involving small amounts of money. There are good reasons why that is the case. Cash is convenient. Cash is private. Cash is intuitive. Cash does not incur explicit transactions costs.

And yet cash is also cumbersome to carry and store. It can be stolen and forged, remains uninvested and usually loses purchasing power over time, and most importantly, cannot be transferred easily across large distances. And so, the pressing need for a digital currency that works.

If you are a cryptocurrency enthusiast, you are probably reading this with great impatience, eager to get to the discussion of how Bitcoin and its alternatives are the answer. Cryptocurrencies, which are digital, encrypted currencies that operate independently of a central bank, are almost costless to move instantaneously, offering both privacy and security. I am also a cryptocurrency enthusiast. But I am not ready to declare victory. At least, not yet.

First, transactions using cryptocurrencies are not convenient. They are not intuitive. Just watch someone pay for coffee at a coffee shop that accepts bitcoin as payment (there are some). Only geeks are likely to find it simple and easy to use. You may protest that this is what people said about email and Internet 20 years ago and look where we are now. Perhaps so. But the transition to electronic money will not be as easy or as simple. Why? Because we are talking about money. Bitcoin’s “blockchain” technology keeps a permanent, public, and seemingly inviolable record of all transactions, which is distributed publicly across many private computer servers around the world in a decentralized fashion. It’s brilliant, elegant, and revolutionary—but also, to quote the author Nathaniel Popper, “one big hack away from total failure.”

Money attracts both fraud and regulation. And uncertainty. Financial regulators are conservative, wary of any new technology that is easy to use and accessible, unless it be proven completely fraud-proof (an impossible standard).

And so, regulators are over-zealous in clamping down on innovation. They will reflexively (and absurdly) invoke “Know your customer” (KYC) regulations and “Anti Money-Laundering” (AML) requirements every time someone proposes something new. It’s as if regulators never want to hear the benefits that might come from financial innovation, however much they might offset any potential downside. But someone who designs a faster car should not be prevented from manufacturing and selling it lest thieves use it get away after robbing a bank. We need to rely on other means of deterring crime.

When we discourage innovation and proliferation of convenient, secure, and costless digital alternatives to money for fear of money-laundering and related crime, we are continuing to disenfranchise nearly 3 billion poor people in the world who would benefit the most from the financial inclusion that frictionless digital money and payments will generate for them.

Here is a concrete example. Imagine that a woman working as a day laborer in India earns 100 rupees on a given day. She may go to a grocery store on her way back home to buy goods worth 80 rupees. If technology made it possible for her to deposit the remaining 20 rupees (which is only about 30 cents) immediately in an account that earns interest or put it immediately in an investment that is expected to grow, without incurring any transactions costs, this could transform her life. Even “small” transactions costs of 5 or 10 cents per transaction would induce her to keep the money in the form of cash, which would not only fail to grow, but may be spent in an impulse purchase by her husband or children.

Similarly, a migrant worker should be able to send money he or she earns nearly free of transaction costs to the family that may live in a different city, or even a different country. Nearly $600 billion of such remittances are currently made across borders. And they are expensive, outrageously so. Nearly 7 percent is lost in intermediation.

How about services such as the mobile phone money transfer business M-Pesa, which is ubiquitous in Kenya? Given the lack of banking alternatives that exist in many African countries, M-Pesa services have deservedly received attention and acclaim from media, policy makers, and global development advocates such as Bill Gates. But even services such as M-Pesa have high transactions costs.

Given the revolution in communication technologies, and how they’ve transformed so many non-monetary domains, it seems reasonable to demand that in the near future we do away with most everyday transactions costs, which are unnecessary. We should shoot for a one- or two-tenths of a percent as an acceptable fee, whether we are seeking to pay with our Apple Watch at the corner deli or seeking to pay for a meal in rural India.

How do we get there?

First, financial institutions need to abandon the stupid idea that every transaction, no matter how small, must be verified. Every time I buy a cup of coffee using some form of electronic money, the retailer need not check with Visa or my bank if I have money or I am credit-worthy to be offered an implicit credit of a few dollars. Such verification should happen infrequently, only when the aggregate amount in question has reached a large predetermined amount. After all, most people have reputation capital these days; in our increasingly interconnected world, even sellers on e-Bay from far-off places like Guangzhou in China can be “trusted” given their reputation scores.

Second, the new digital money needs to feel simple, intuitive, and easy to use even in even the most illiterate parts of the world. You often hear experts advocating financial literacy and educational programs to “teach” people how to use new technology-based money. But the most effective adoptions happen when people learn by imitation. So, this electronic money must become ubiquitous. People should see it being used by rich and poor alike and in developed and developing countries in essentially similar ways. No one offered cell phone literacy classes or programs when the technology was introduced, but cell phones quickly went from being aspirational objects to being widely adopted as the costs fell sufficiently low. Now more people use cell phones than toilets in the world. In the same way, electronic money is likely to grow when middle-class consumers start using it regularly, even when transacting with the poor.

Lastly, the dream of the libertarian cryptocurrency enthusiasts that money will become totally anonymous, far from the reach of the government and inept regulators, is not practical. We want technology that empowers individuals, but we need shared institutions such as the courts and regulators that protect people and the integrity of the currency being used. After all, 7 billion people aren’t going to make the transition purely on faith.

Bhagwan Chowdhry is a professor of finance at the UCLA Anderson School of Management and the co-founder of Financial Access at Birth. More about him can be found here.

TIME Ideas hosts the world's leading voices, providing commentary and expertise on the most compelling events in news, society, and culture. We welcome outside contributions. To submit a piece, email ideas@time.com.

TIME Greece

Greeks Fear a ‘Haircut’ on Their Savings As Bailout Deal Expires

A Greek national flag flutters atop a building as dark clouds fill the sky in Athens on June 30, 2015.
Alkis Konstantinidis—Reuters A Greek national flag flutters atop a building as dark clouds fill the sky in Athens on June 30, 2015.

A Cyprus-style tax on deposits is one of the dwindling options the Greek government has left

The phones at Tax Solutions, an accounting firm in the south of Athens, began ringing non-stop early on Monday. On orders from the Greek government, the banks did not open that morning as harsh restrictions were imposed on the amount of money their clients could withdraw.

The accounting firm’s CEO, Vassilis Bagourdis, had been up since dawn, nervously puffing at cigarillos and trying to figure out what the capital controls could mean: Had Greek banks at last run out of money? How long would they stay solvent? And could the government now levy a tax on deposits like the one Cyprus imposed two years ago?

This scenario, which amounts to the seizure of money from private accounts, would be the latest in a fast succession of financial nightmares for Greece, but at this point, Bagourdis says, “There is no telling what tomorrow will bring.” As of midnight on Tuesday, the bailout program that has kept the Greek economy afloat officially expired, and Greece missed a $1.6 billion payment to the International Monetary Fund, meaning it has essentially defaulted on its debts. As a condition of any more assistance, Greece’s creditors have demanded more reforms and austerity measures, including tax hikes and pension cuts, which Greek Prime Minister Alexis Tsipras has repeatedly rejected.

His government is clearly getting desperate. As the midnight deadline approached, Tsipras appealed for another bailout from the 18 other European countries that use the euro as their currency. It would be the third bailout Greece has received in five years. The first two were worth a combined 240 billion euros, and the third one that Tsipras requested would need to extend at least another 30 billion euros over the next two years just so Greece can make payments on existing debts. After an emergency conference call on Tuesday, however, European finance ministers denied his request.

That pushed Greek banks closer to the brink. Over the weekend they had already been cut off from emergency cash injections from European Central Bank, prompting the government to limit withdrawals from each account to a mere 60 euros per day, barely enough for a family to go grocery shopping in Athens. On top of those restrictions, the banks will also remain closed for a “holiday” at least through July 5, which is the next day of reckoning on the Greek financial calendar.

That morning polls are scheduled to open for a national referendum on whether or not to accept the conditions of more assistance from the country’s creditors. It is a bizarre choice to put on a ballot, not least because the creditors formally withdrew their offer as of midnight on Tuesday, when Greece’s bailout program expired. So if the referendum goes ahead – and that is still a big “if” – the Greeks will be asked to vote on a deal that is no longer on the table. Still, the outcome of the vote would mark another step toward the dreaded deposit tax, sometimes called a “haircut” on deposits.

Innocuous as the euphemism seems, this measure would amount to the government seizing the money it needs from regular people’s accounts. “Depending on how the referendum goes, I’d say there is a 60-70% chance of a haircut,” says Bagourdis, whose clients include businesses that would be devastated by such a move.

Some opposition lawmakers put the odds even higher. If voters reject the terms of continued aid from Greece’s creditors on July 5, “the chances of a haircut would be certain,” says Haris Theoharis, a parliamentarian who until late last year was Greece’s top tax collector.

It would in some ways be a repeat of the 2013 crisis in Cyprus. In March of that year, the European Central Bank also stopped providing cash injections – known as emergency liquidity assistance (ELA) – to struggling Cypriot banks, much as it did to Greek banks over the weekend. The government in Cyprus complained that this was a form of blackmail from its European creditors, but in the end it was still forced limit cash withdrawals and impose a tax on deposits, shaving 10% off the value of uninsured accounts that were worth more than 100,000 euros.

In part because many of those accounts belonged to wealthy foreigners – primarily Russians who were using Cyprus as a tax haven – the country did not see any mass unrest after its haircut on deposits. “But here it would be different,” says Bagourdis, who also serves as a senior adviser to the opposition New Democracy party in Greece. “Here it would be regular families and businesses that suffer from this measure.”

Though the current government denied that it was considering such a move earlier this year, the possibility of such a stopgap measure has made many Greeks nervous. In May, the Guardian newspaper quoted an official from the Greek central bank warning that this could cause a violent public backlash. “We would see the revolt that this crisis has not yet produced,” the official was quoted as saying. “There would be blood in the streets. The Greeks are not like the Cypriots.”

It would then be very hard for Tsipras to maintain his base of support – and to stay in power – especially considering that he was elected in January on a promise to end austerity and reduce the tax burden on workaday Greeks. But the dramatic collapse of his negotiations with Greece’s creditors since then has left Tsipras with fewer and fewer options. As part of a new bailout deal, European financial institutions could even insist on a haircut on deposits, much as they did during the Cypriot crisis of 2013.

So even if Greeks vote on July 5 to accept the harsh terms of their country’s creditors – as European leaders have urged them to do – they would still not take the prospect of a deposit tax off the table. “We would still be moving in that direction,” says Bagourdis. As its options for emergency financing are whittled down, the Greek government could be left with no other choice.

TIME Greece

Greece Defaults on Debt After Five Years of Bailouts

A Greek national flag flutters atop a building as dark clouds fill the sky in Athens on June 30, 2015.
Alkis Konstantinidis—Reuters A Greek national flag flutters atop a building as dark clouds fill the sky in Athens on June 30, 2015.

The first developed country to fall into arrears on payments to the IMF since 2001

Greece slipped deeper into its financial abyss after the bailout program it has relied on for five years expired at midnight Tuesday and the country failed to repay a loan due to the International Monetary Fund.

With its failure to repay the roughly 1.6 billion euros ($1.8 billion) to the IMF, Greece became the first developed country to fall into arrears on payments to the fund. The last country to do so was Zimbabwe in 2001.

After Greece made a last-ditch effort to extend its bailout, eurozone finance ministers decided in a teleconference late Tuesday that there was no way they could reach a deal before the deadline.

“It would be crazy to extend the program,” said Dutch Finance Minister Jeroen Dijsselbleom, who heads the eurozone finance ministers’ body known as the eurogroup. “So that cannot happen and will not happen.”

“The program expires tonight,” Dijsselbleom said.

The brinkmanship that has characterized Greece’s bailout negotiations with its European creditors and the IMF rose several notches over the weekend, when Prime Minister Alexis Tsipras announced he would put a deal proposal by creditors to a referendum on Sunday and urged a “No” vote.

The move increased fears the country could soon fall out of the euro currency bloc and Greeks rushed to pull money out of ATMs, leading the government to shutter its banks and impose restrictions on banking transactions on Monday for at least a week.

But in a surprise move Tuesday night, Deputy Prime Minister Yannis Dragasakis hinted that the government might be open to calling off the popular vote, saying it was a political decision.

The government decided on the referendum, he said on state television, “and it can make a decision on something else.”

It was unclear, however, how that would be possible legally as Parliament has already voted for it to go ahead.

Greece’s international bailout expires at midnight central European time, after which the country loses access to billions of euros in funds. At the same time, Greece has said it will not be able to make a payment of 1.6 billion euros ($1.8 billion) to the IMF.

With its economy teetering on the brink, Greece suffered its second sovereign downgrade in as many days when the Fitch ratings agency lowered it further into junk status, to just one notch above the level where it considers default inevitable.

The agency said the breakdown of negotiations “has significantly increased the risk that Greece will not be able to honor its debt obligations in the coming months, including bonds held by the private sector.”

Fitch said it now considered a default on privately-held debt “probable.”

Hopes for an 11th-hour deal were raised when the Greek side announced it had submitted a new proposal Tuesday afternoon, and the eurozone’s 19 finance ministers held a teleconference to discuss it.

But those hopes were quickly dashed.

German Chancellor Angela Merkel said she ruled out further negotiations with Greece before Sunday’s popular vote on whether to accept creditors’ demands for budget reforms.

“Before the planned referendum is carried out, we will not negotiate over anything new,” the dpa news agency quoted Merkel as saying.

Greece’s latest offer involves a proposal to tap Europe’s bailout fund — the so-called European Stability Mechanism, a pot of money set up after Greece’s rescue programs to help countries in need.

Tsipras’ office said the proposal was “for the full coverage of (Greece’s) financing needs with the simultaneous restructuring of the debt.”

Dijsselbloem said the finance ministers would “study that request as we should” and that they would hold another conference call Wednesday, as they had also received a second letter from Athens that they had not had time to read.

Dragasakis said the new letter “narrows the differences further.”

“We are making an additional effort. There are six points where this effort can be made. I don’t want to get into specifics. But it includes pensions and labor issues,” he said.

European officials and Greek opposition parties have been adamant that a “No” vote on Sunday will mean Greece will leave the euro and possibly even the EU.

The government says this is scaremongering, and that a rejection of creditor demands will mean the country is in a better negotiating position.

In Athens, more than 10,000 “Yes” vote supporters gathered outside parliament despite a thunderstorm, chanting “Europe! Europe!”

Most huddled under umbrellas, including Athens resident Sofia Matthaiou.

“I don’t know if we’ll get a deal. But we have to press them to see reason,” she said, referring to the government. “The creditors need to water down their positions, too.”

The protest came a day after thousands of government supporters advocating a “No” vote held a similar demonstration.

On Monday, European Commission President Jean-Claude Juncker made a new offer to Greece. Under that proposal, Tsipras would need to accept the creditors’ proposal that was on the table last weekend. He would also have to change his position on Sunday’s referendum.

Commission spokesman Margaritis Schinas said the offer would also involve unspecified discussions on Athens’s massive debt load of over 300 billion euros, or around 180 percent of GDP. The Greek side has long called for debt relief, saying its mountainous debt is unsustainable.

A Greek government official said Tsipras had spoken earlier in the day with Juncker, European Central Bank chief Mario Draghi and European Parliament president Martin Schulz.

Meanwhile, missing the IMF payment will cut Greece off from new loans from the organization.

And with its bailout program expiring, Greece will lose access to more than 16 billion euros ($18 billion) in financial support it has not yet tapped, officials said. They spoke on condition of anonymity because talks about the program were still ongoing.

On the streets of Athens, long lines formed again at ATM machines as Greeks struggled with the new restrictions on banking transactions. Under credit controls imposed Monday, Greeks are now limited to ATM withdrawals of 60 euros ($67) a day and cannot send money abroad or make international payments without special permission.

The elderly have been hit particularly hard, with tens of thousands of pensions unpaid as of Tuesday afternoon. Many also found themselves completely cut off from any cash as they do not have bank cards.

The finance ministry said it would open about 1,000 bank branches across the country for three days beginning Wednesday to allow pensioners without bank cards to make withdrawals. But the limit would be set at 120 euros for the whole week.

TIME Money

This Is What It’s Like to Be a Rich Man in Greece Who Can Not Legally Pay His Debt

People stand in a queue to use an ATM outside a closed bank in Athens on June 30, 2015.
Thanassis Stavrakis—AP People stand in a queue to use an ATM outside a closed bank in Athens on June 30, 2015.

The cautionary tale shares a number of lessons on currency control

The Greek government shut all banks in the country on June 29 after the European Central Bank capped emergency funding to the lenders.

Cash withdrawals from ATMs are now limited to €60 a day (about U.S. $67) for Greek citizens. Foreigners who can find an ATM with cash are exempt from the limit, but cash-poor tourists are finding it very hard to find ATMs with money.

More important, Greece has made the first step down the road to capital controls by prohibiting the transfer of money to destinations outside Greece unless approved by the Ministry of Finance.

No one knows what the impact will be on Greece and the rest of the world. However, history can shed some light on the situation. Before joining the euro, the Greek government had previously implemented strict capital controls and foreign transaction limitations. My personal experience suggests these temporary measures will hurt the economy in the long term.

What do countries gain by currency controls?

I visited Greece in the mid-1980s, a time when the country had very strict currency controls. It was illegal to exchange foreign money in the country except at a bank.

Countries often implement these kinds of policies because it gives them a chance to impose a hidden tax on all foreign exchange transactions. The tax is hidden because the official rate is very different from the free market rate.

Argentina is a country where the official, or “blanco dollar,” rate is very different than the black market, or “blue dollar,” rate.

For example, today going to a bank and exchanging one US dollar will get you about 9,000 pesos at the “blanco dollar” official exchange rate. However, the “blue dollar” rate is about 13,500 pesos, which gets you 50% more for your money. If exchanging US$20 at the official rate gets enough money for dinner in Argentina, using the “blue” rate will get enough money for lunch plus dinner.

Other reasons why countries implement controls are found in a very readable overview of the topic published by the Federal Reserve Bank of St Louis (see table 1 here).

My experience with Greek currency controls

I arrived in Greece in the mid-1980s for a 10-day trip and exchanged U.S. dollars without a problem into Greek drachmas, the currency prior to the euro.

I had a wonderful time seeing famous ruins such as the Parthenon, cycling through picturesque towns and eating great food. My last day in Greece was in the middle of the week. I was staying in Athens and had already purchased a boat ticket to another country. I woke up, paid my hotel bill — which emptied my wallet of Greek drachmas — and planned on stopping by a bank to get some money to pay for laundering the clothes I had dropped off two days earlier at a nearby cleaners and then heading down to the port for a leisurely lunch before departure.

I was surprised to find the streets empty, many shops closed and not a single bank open, all in the middle of the week. It was May 1, International Workers’ Day, which is commonly called May Day. The streets were soon filled with tens of thousands of Greeks marching and chanting slogans.

Luckily, the cleaners that had my neatly pressed clothes was still open. However, while I had lots of US dollars, and even an American Express credit card, I had no Greek money. The owner explained to me that if she took dollars in payment, she could be arrested for violating the currency controls. She took pity on me and gave my clothes back cleaned for free and even handed me a subway token to get me down to the port.

I was rich man who could not legally pay my debt. To this day I am confused on the right thing to do. Paying her in dollars was a crime. Not paying her was stealing. Before leaving the shop I surreptitiously slipped roughly how much I owed in U.S. dollars under a vase near the cash register when the shop owner wasn’t looking. Hopefully, the currency police didn’t catch her.

Currency controls made it difficult for me to spend money and greatly dampened my desire to visit Greece again. The important question Greek politicians face is whether implementing currency controls will help save Greece’s banks.

Economists have not reached a unified consensus on the answer. Some research suggests controls are economically good, some research finds it economically bad and some finds it not important. The business press, however, often cheers the removal of currency controls, with examples like Bloomberg attributing the economic resurgence of Poland to policy changes, such as the elimination of capital and currency controls.

My opinion is that implementing currency controls now will stifle tourism, which makes up directly and indirectly about 16% of the Greek total gross domestic product (GDP). It will also not help weak Greek banks very much, because people have lost faith that they can access their savings.

Reducing tourism and not rebuilding people’s faith in Greek banks ensures Greece’s economic revival will take even longer after the debt crisis is finally resolved. Capital controls look to me like a short-term bandage that only allows a long-term wound to get more seriously infected.

This article originally appeared on The ConversationThe Conversation

TIME Ideas hosts the world's leading voices, providing commentary and expertise on the most compelling events in news, society, and culture. We welcome outside contributions. To submit a piece, email ideas@time.com.

TIME Economy

What to Know About Obama’s Overtime Pay Announcement

The President announced that he's expanding overtime pay for a large swath of Americans

Wait, when did this happen?

In an op-ed titled “A Hard Day’s Work Deserves a Fair Day’s Pay,” which appeared on Huffington Post on Monday night, the President outlined the as-yet-unnamed overtime pay rule.

Set to take effect in 2016, the rule—which follows a Presidential directive in March to the Department of Labor to revise standards—would more than double the salary range for workers who are required to receive overtime pay, regardless of whether they are paid hourly or in salary.

Does this mean I’ll get more overtime?

Quite possibly: Obama’s op-ed notes that “nearly 5 million workers” would be affected by this change in 2016.

Current overtime-eligible salaries top off at $23,660, but the new rule would allow workers earning up to $50,440 to demand time-and-a-half for each hour of work beyond 40 hours.

The new salary cap reflects the average, middle-class American household’s income, which has stagnated at just under $52,000 for the past 15 years.

“That’s good for workers who want fair pay, and it’s good for business owners who are already paying their employees what they deserve—since those who are doing right by their employees are undercut by competitors who aren’t,” Obama wrote.

But why now?

The push for overtime pay moved up the President’s priority list after a scathing 2013 report by economists Jared Bernstein and Ross Eisenbray, which argued that the economy would actually be better off if employers built in overtime pay that was indexed to real salary levels instead of those from 1975, as under the current rule.

In other words, the President is seeking to make overtime pay more responsive to how we live in 2015 as opposed to how we lived in 40 years ago.

Who benefits from this proposal the most?

In a post-recession economy that has seen men struggle to recover their pre-recession earnings and employment levels, the rule promises to be a boost to men whose income is above the current overtime threshold.

Single women, however, stand to gain the most: With average income hovering around $35,154, unmarried women previously experienced the double whammy of earning less income than their single male counterparts (single men earned an average of $50,625 in 2013), and being unable to earn overtime pay.

Is anyone opposed to it?

Yes—much of the Republican Party. Some Republicans in Congress have already raised concerns about the rule, saying companies will have a reduced incentive to hire people now that they will have to pay them more.

The National Retail Federation has made a similar argument, previously citing an Oxford Economics study that argues employers would have less of a reason to hire workers, thereby nullifying any advantages to take-home pay for employees.

The rule would “add to employers’ costs, undermine customer service, hinder productivity, generate more litigation opportunities for trial lawyers and ultimately harm job creation,” the NRF said.

Both supporters (like the AFL-CIO) and opponents expect the rule, which would likely be enacted by the end of next year, to go to court and face Congressional challenge.

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