Greek withdrawal symptoms
Greece's next elections may amount to a referendum on whether to quit the eurozone, as leaders warn the country's banks could collapse if frightened citizens continue to make withdrawals.
In Athens, bankers are worried that more than €5 billion ($US6.4 billion) has been pulled out of Greece’s banks since elections held earlier this month resulted in an acrimonious political stalemate. Later today, Greek president Karolos Papoulias will meet with the leaders of the country’s main political parties to form a caretaker government that will run the country until fresh elections, expected for June 17, are held.
On Sunday, Papoulias told the heads of the country’s three main political parties that he was "frightened” by the spectre of political instability. According to an official transcript of the meeting, Papoulias highlighted that "the danger is real”. He also pointed to warnings from the country’s outgoing prime minister, Lucas Papademos, and from the head of the Bank of Greece, George Provopoulos, over the state of the country’s financial reserves, as well as the "danger that the country’s banking system could collapse if withdrawals continued as a result of citizens feeling insecure due to the political situation.”
However, many doubt whether fresh elections will result in a stable government being formed. According to the Greek newspaper Kathimerini, the four main Greek political parties have split into two hostile camps over the painful austerity program the country was forced to implement in exchange for its latest €130 billion bailout.
In one camp, there are the conservative New Democracy and the socialist Pasok parties, which argue that Greece needs to conform to the bailout deal. In the other camp, there are the radical left Syriza party and the nationalist Independent Greeks, both of which are fiercely opposed to austerity.
Syriza, which saw its support surge in the May 6 election, has refused to enter into an alliance with Pasok and New Democracy, which it blames for signing the "diktats” issued by Brussels. Overnight, its leader, Alexis Tsipras, welcomed the prospect of fresh elections, saying that it was now time "to form a leftist government that will be boosted by the Greek people and in parliament in order to put a final end to the policies destroying the country.”
Recent polls suggest that Syriza, which wants to tear up the country’s loathed austerity program but remain in the eurozone, is poised to pick up the largest share of the vote at the next elections.
But German Finance Minister Wolfgang Schuble believes that Greece’s fresh elections are tantamount to a referendum on whether the country remains in the eurozone. "If Greece – and this is the will of the great majority – wants to stay in the euro, then they have to accept the conditions,” he said. "Otherwise it isn’t possible. No responsible candidate can hide that from the electorate.”
His comments were echoed by the Swedish Finance Minister, Anders Borg, who said that Greece must "seriously consider" its membership of the eurozone. "We are very close to the end of the road," he warned. "The situation is very serious."
Meanwhile, IMF boss Christine Lagarde did little to reassure financial markets, which are deeply worried about the fallout from a 'Grexit'. She said that although the consequences were difficult to assess, "we can certainly assume that it would be quite messy.”
Investors are deeply worried Athens could soon be bankrupt if its aid money – which it uses to pay public servants and pensions, as well as paying interest on its debt – is cut off. The country needs to find €11.5 billion in extra budget savings over the next two years before its next tranche of aid money is approved.
At the same time, worries over a Greek debt default caused investors to dump Spanish and Italian government bonds, pushing up yields on 10-year Italian bonds to 6.01 per cent, while yields on Spanish 10-year bonds climbed to 6.3 per cent.