Greece to go to the polls again as euro exit fears grow
THE second Greek election will take place on June 17 and Judge Panagiotis Pikrammenos will head the temporary caretaker government in the interim, it was announced today.
Bond yields surged in Italy and Spain and markets dropped, as a Greek exit from the eurozone looks increasingly likely, putting investors at risk of "killer losses" on the country's debt.
Greeks are pulling their euros from the country's banks, afraid of their savings being rapidly devalued if the country does leave the single currency.
Central bank head George Provopoulos told President Karolos Papoulias that savers withdrew at least €700m on Monday.
"Mr Provopoulos told me there was no panic, but there was great fear that could develop into a panic," the minutes of a meeting with political party leaders quote the president as saying.
"Withdrawals and outflows by 4:00 pm when I called him exceeded €600m and reached €700m," the President said. "He expects total outflows of about €800m."
There are no signs of a full-on run on the banks yet, no queues outside banks in Athens, but the situation is being closely watched as such a development will bring an inevitable end to its euro membership.
The second Greek election will be held on June 17 and Judge Panagiotis Pikrammenos will head the temporary caretaker government, NET TV reported.
Shares in Bankia were down almost 10pc today, after the Bank of Spain ordered the newly bailed-out lender to come up with a new plan to sort out its real estate assets. Bankia said in a statement: “The Bank of Spain, in view of the events of the last few weeks and the growing uncertainty about the future of the entity, has demanded the presentation of a strengthened plan.”
Bankia is the biggest holder of bad property debt in Spain, having been formed by the merging of seven weak banks in 2010 in an attempt to turn them all around with improved efficiency.
Spanish and Italian bond yields this afternoon came back from their highs of this morning - some economists speculated that the ECB may have been involved, but there was no confirmation.
British Prime Minister David Cameron said the EU either has to "make up or break up" and that the choice can't be put off for long:
“The eurozone has to make a choice. If the eurozone wants to continue as it is, then it has got to build a proper firewall, it has got to take steps to secure the weakest members of the eurozone, or it's going to have to work out it has to go in a different direction. It either has to make up or it is looking at a potential break up. That is the choice they have to make, and it is a choice they cannot long put off.”
London markets fell heavily on opening today but European markets began to calm down by mid morning - shares were still lower not as far as first thing this morning. The FTSE 100 was off 1pc at 5,384 points, while the CAC was down 0.1pc in Paris and the German DAX was 0.9pc down.
Spain's IBEX was off 0.3pc and the FTSE MIB was down 0.4pc.
On the bond markets - according to Bloomberg prices, the yields on Italian government debt have risen above 6pc for the first time since the end of January (Reuters prices, which are slightly different with the yield on the benchmark 10-year bond rising above 6pc briefly yesterday afternoon).
The yield was earlier today trading up 14 basis points at 5.98pc, while yields on Spain's 10-year bonds also rose, adding 15 basis points to 6.45pc.
It represents a perilous new phase in the financial crisis as dire predictions emerged of a collapse in Greece’s economy.
The International Monetary Fund said Europe’s leaders should prepare for the possibility of a Greek departure from the single currency.
Christine Lagarde, head of the IMF, warned she was “technically prepared for anything” and said the utmost effort must be made to ensure any Greek exit was orderly. The effect was likely to be “quite messy” with risks to growth, trade and financial markets. “It is something that would be extremely expensive and would pose great risks but it is part of options that we must technically consider,” she said.
Raising tensions still further, Germany warned Greek voters that the wrong result in next month’s election will force their country out of the single currency.
Greece’s president warned, perhaps most alarmingly, that its banks risk running out of money, posing a “threat to our national existence”.
The escalating turmoil sharpened fears in financial markets, with European shares and the euro itself falling again.
Karolos Papoulias, the Greek president, yesterday warned party leaders that their continued failure to agree was risking “fatal consequences”. Citing a secret government document, he said Greeks were already pulling €100 million a day out of the country’s banks. Almost €1 billion has been withdrawn since the last elections on May 6.
“The extension of political instability will lead to fatal consequences. The absence of government is a serious risk to the financial security of the Greek people and our national existence,” the president was reported as saying.
Mr Papoulias said he had been warned by the central bank and finance ministry that the country faced “the risk of a collapse of the banking system if withdrawals of deposits from banks continue due to the insecurity of the citizens generated by the political situation”.
Some economists have suggested that a euro exit could be done in an orderly way by closing Greek banks while the country prepares to reissue the drachma.
Costas Simitis, a former prime minister, said that would spark panic, warning that Greeks would rush to withdraw money from banks.
“If they close more than three days there will be a bank run,” he said.
A report in Germany’s Wirtschaft Woche magazine forecast that a Greek bankruptcy and exit from the euro would cost the governments of the single currency’s 17 members €300 billion, pushing the eurozone and European economy into a crisis not seen since the 1930s.
François Hollande, the new French president who was sworn in yesterday, was in Berlin hours after his inauguration for talks with Angela Merkel, the German chancellor.
In a joint press conference, Mr Hollande insisted that “everything must be put on the table” to help growth in Europe. The pair agreed that they wanted Greece within the euro. However. Mr Hollande added: “We have to allow Greece to find solutions.”
Adding yet more drama to the day, Mr Hollande was initially forced to turn back when his plane was struck by lightning after leaving Paris.
Wolfgang Schauble, the German finance minister, piled further pressure on Greek voters, warning that unless they deliver a government that honours the terms of the bail-out, he said, the country will have to leave the euro.
Attempts to form a government collapsed yesterday after the Left-wing Syriza party refused to work in any unity government that implements cuts required by the EU-IMF bail-out.
Alexis Tsipras, the leader of Syriza, said: “If it is not possible to reach a government formation, we believe that the judgment of the people and their verdict is not a national disaster.”
Evangelos Venizelos, the leader of the socialist Pasok party, attacked Mr Tsipras and other anti-austerity parties for “arrogance and adventurism."