Greek bank withdrawals rise before Sunday elections

14th June 2012

Withdrawals by customers at Greek banks have been accelerating before Sunday's elections, banking sources said Wednesday.

"There has been a deterioration in the situation in the past few days; I estimate that between 600 million euros [$750 million] and 900 million euros have been leaving the system per day," said a senior banker at one of Greece's leading lenders.

"As we approach the last few days before the elections I expect deposit withdrawals to rise further," he added. "And I wouldn't be surprised if by Friday we saw outflows of 1 billion to 1.5 billion euros."

The result of Sunday's election, called after a previous vote on May 6 which failed to produce a government, remains too close to call, with the conservative New Democracy party running neck and neck with radical left-wing Syriza party.

So what will happen this weekend?

If the conservatives (New Democracy) or the socialists (Pasok) win with some form of coalition formed, the markets will likely rally, writes Bob Pisani. "I know this is the same outcome as last time. But this time there will be more pressure to form a coalition."

"If the far left party (Syriza) wins, they have already said they will renounce the bailout."

"But wait a minute. ‘Renounce' is likely just election-speak for ‘renegotiate.' Syriza will need to form a coalition. They too will want to show they can govern, and that likely means going along with the program and trying to renegotiate, not just walk away. The Troika knows that."

"And they have to negotiate. They're bankrupt. If they don't negotiate, they won't get the money they need to run the country. Second, the banks have no money, and they only get it from the ECB.  They'll likely negotiate and not risk complete collapse and an exit from the euro."

"Of course, almost anything can go wrong, especially if the victorious party overplays its hand and demands massive debt relief."

Contingency plans

Earlier this week, the Toronto Star reported that European finance officials have already started to discuss what contingency plans to put in place should Greece decide to leave the euro. A worst-case scenario would involve limiting the size of withdrawals from ATM machines, imposing border checks and introducing capital controls.

One source said: "Contingency planning is underway for a scenario under which Greece leaves. Limited cash withdrawals from ATMs and limited movement of capital have been considered and analysed."

Another source confirmed the discussions, including that the suspension of the Schengen agreement, which allows for visa-free travel among 26 countries, was among the options raised.

"These are not political discussions, these are discussions among finance experts who need to be prepared for any eventuality," the second source said. "It is sensible planning, that is all, planning for the worst-case scenario."

 

More on Mindful Money:

Is Greece the word? Or should Germany leave the euro?

Future winners of the European Championship

How much will Spain's bailout cost?

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