The Greek economy is showing signs of shutting down.

On Tuesday, the day that its current bailout program expired and the cash-strapped government said it would not make a €1.6-billion ($2.2-billion) payment to the International Monetary Fund, businesses were reporting lower sales and making emergency plans to cope with the bank closings and tight restrictions on ATM withdrawals and money transfers.

One senior bank executive in Athens, who did not want to be identified, said the situation was already getting dire and that the economy could be paralyzed as early as next week as the banks remain shut. “You will see bare shelves,” he said.

When it announced the bank closings last Sunday, the Greek government said they would reopen after Sunday’s national referendum. The referendum will ask voters to accept or reject the creditors’ last bailout proposals, which offer fresh bailout loans in exchange for more austerity measures, including tax hikes and pension payment cuts.

While a vote to accept the lenders’ terms might encourage the European Central Bank to provide more emergency loans to Greek banks to cover the deposit withdrawals, a No vote, which the government of Prime Minister Alexis Tsipras is encouraging, would do the opposite and almost certainly keep the banks shut and the €60 withdrawal limit in place. On Sunday, the ECB capped its lifeline to the banks – known as emergency liquidity assistance – triggering the bank closings to stem an outflow of funds.

Between Friday and late Monday, another €600-million of deposits was yanked out of the banks by nervous customers, putting the lenders dangerously close to a full-blown funding crisis.

Cash hoarding has quickly replaced spending and businesses everywhere were seeing slumping sales. Athena Aspro Alogo, the Egyptian-born owner of a central Athens restaurant that carries her name, said business has dropped 60 per cent since the weekend. “We’re very sad because the people have no money,” she said. “The Greek people aren’t coming any more.”

Nearby, a hotel owner, Takis Kalozaropoulos, said any hotel, restaurant or café that did not cater to foreign tourists, whose ATM cards are not subject to the withdrawal limit, were already struggling. “In the non-tourist areas, you get a problem,” he said. “If banks do not open next week – really, really big problem.”

Bigger businesses were making plans to deal with a cash-short society. Georges Ghonos, managing director for southeastern Europe, including Greece, for McCain Hellas, the Greek arm of Canada’s McCain Foods, said it is screening its 100 or so distributors to make sure they are financially stable.

The distributors are typically paid in cash from the restaurants and supermarkets that buy McCain’s frozen French fries. If the distributors do not get their cash, they cannot pay McCain. “If cash disappears, our sales will drop,” he said. “We need to protect our financial exposure.”

Greek businesses were praying for a Yes vote on Sunday and some of their bosses and managers planned to attend a pro-Yes rally in Athens’s Syntagma Square, next to the parliament buildings, on Tuesday evening.

The bank executive who did not want to be identified said the economy could shut down at an alarming speed in the event of a No vote. The restrictions on international transfers would mean that orders placed for goods outside of Greece, from auto parts to fuel, could not be paid for in full, meaning they probably would not be shipped to Greece. “The banks will run out of money and companies will shut their doors,” he said.

While a few polls suggest that the Yes vote will emerge on top in the referendum, Mr Tsipras, the Leader of the radical left, anti-austerity Syriza party, remains popular in Greece. The Yes side fears that many voters will vote No simply because they like Mr. Tsipras above other politicians, not necessarily because they want to reject the creditors’ bailout terms, a move that would dramatically boost the odds of Greece leaving the euro zone.

The results from the Jan. 25 election, which was overwhelmingly carried by Syriza, suggest that a No vote could win. Based on exit polls, Syriza placed first among public-sector employees (38 per cent against 24 per cent for New Democracy, the former governing party, which is now the main opposition and remains staunchly pro-Europe and pro-bailout), private-sector employees (39 per cent to 23 per cent), the self-employed 34 per cent to 29 per cent) and the unemployed (44 per cent to 20 per cent).

Only pensioners voted in greater numbers for New Democracy than Syriza.

On Tuesday evening, the prospect of the banks remaining closed through next week rose, when Germany Chancellor Angela Merkel reportedly said she would not consider a new bailout proposal launched late in the day by the Greek government until after the referendum. The proposal asked for a two-year program that would include a sovereign-debt restructuring. But Greece’s creditors – the IMF, the European Union and the ECB – refused to include a debt writeoff in the current bailout and may refuse one in any subsequent bailout.

ATHENS — The Globe and Mail
Published Tuesday, Jun. 30, 2015 7:20AM EDT
Last updated Tuesday, Jun. 30, 2015 11:54PM EDT