Greek Euro exit looms as more banks collapse
Economists warned that the Greek financial system could
collapse within weeks or days unless the European Central Bank steps up
support.
President Karolos Papoulias told party leaders that the
banks had lost € 700 million in withdrawals on Monday alone as citizens rush to
preempt capital controls and a dreaded return of the drachma.
He cited the central bank warnings that "great
fear" could soon escalate into panic. The details disclosed lend
credibility to claims that capital flight by both investors and companies
reached € 4 billion a week since the triumph of the anti-bailout party on May 6
Steen Jakobsen from Saxo Bank said outputs are becoming
unstoppable, not helped by an open discourse in the EU technical circles
"of Greek withdrawal plans.
"It has a self-fulfilling prophecy built into it and I
do not think we can get to June The fuse is burning and the only two options
are now a controlled explosion, where Germany intervened to ensure an orderly
exit, or an uncontrolled explosion, "he said.
The alarm comes more as a judge Panagiotis Pikrammenos was
chosen as caretaker leader of Greece until the next vote on June 17 Polls show
that the left wing SYRIZA leader Alexis Tsipras emerging as clear winners.
Mr. Tsipras has promised to tear the EU and IMF bailout
`protocol ', urging German Chancellor Angela Merkel to" stop playing poker
with people's lives. " The deadlock has shaken the Greek market, with the
FTSE 100 down 0.6pc at 5405 yesterday. Spanish lender Bankia fell 11pc in
Madrid. Gold fell $ 17 to a lowest level in ten months of 1540 U.S. dollars on
the strength of the dollar.
The crisis is to reproduce the pattern of fixed exchange
breaks throughout history. Britain was forced off the gold standard in 1931
after payment of the Navy cut protests triggered capital flight.
Greek banks have lost 30pc of their deposits since the end
of 2009. The total fell to € 171bn in March. "The surprise is that there
is still so much left. I can not believe he will stay much longer," said
Simon Ward, Henderson Global Investors.
The ECB is holding the line with an estimated € 100 billion
emergency liquidity assistance (ELA) for lenders, which passes through the
central bank of Greece. Supplicants must pledge their loan portfolio in
exchange. "The risk is that banks run out of warranty because they are
quality assets at low prices with a haircut of 50pc or more. The ECB could
relax the rules, but they would have to take an active decision to do"
said Mr. Ward.
JP Morgan said Greek banks have already exhausted their
warranty. A refusal by the ECB to relax the rules would amount to expulsion,
forcing Greece "to issue its own currency."
The ECB said it had stopped routine operations with certain
banks with Greek capital buffers exhausted, but he stressed they are still able
to access the regime of ELA.
There is already a political storm in Germany over
"junk guarantees", aswell as anger over the Bundesbank € 645bn
exposure to Club Med debtors through the ECB's TARGET2 `internal 'payments
nexus. Mr. Ward stated that it would be difficult to justify to taxpayers why
the German Bundesbank should increase lending to "austerity resistant
Greeks" so they can squirrel the money abroad.
Julian Callow of Barclays Capital said the ECB serious risk
of contagion if she lets go of Greek banks. "We have reached the point
where the ECB has to come with a massive and outright quantitative
easing," he said.
Capital loss of Club Med shows slow in the ECB TARGET2 data.
The central banks of Italy and Spain have built liabilities of € 279bn and €
284 billion, partly reflecting the bank withdrawals. This is due to Germany,
the Netherlands, Luxembourg and Finland.
Italy's banking lobby said foreign currency deposits in
domestic banks fell 20pc in March. The good news is that the Libor-OIS spread -
the "strain gauge" for banks - has not increased in the last spasm of
the crisis, suggesting that the Club Med deposit flight is modest for now .
That could change quickly if one breaks out Greek holiness of monetary union.
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