Towards the Greek elections

Greece on edge of financial collapse as paralysis takes hold in election runup

Surprise filip in Athens stocks on 'pro-Europe' coalition rumours comes against backdrop of panic and economic devastation

the Guardian,

14 June, 2012

Whatever government emerges from Greece's make or break ballot on Sunday, it will take over a country on the edge of financial collapse.

The telltale signs are too obvious to ignore: the early morning queues outside banks, the banner headlines predicting economic disaster, the businesses shuttered and boarded up, the deals and projects put on hold.

"Absolutely nothing is moving either in the public or private sector," said a prominent Athenian lawyer who sits on the committee of a large foreign hedge fund. "No one wants to invest, or make any commitment in such uncertainty," she said. "They are all waiting to see what will happen after the election."

If the economy is all about psychology, then Greece is already fighting a lost war – even if the Athens stock exchange soared on Thursdayon secret polling data suggesting that a pro-European coalition, committed to punishing reforms, would win the election.

The country's main stock index closed a staggering 10.1% higher, with banking shares posting a collective 23.6% increase.

But the surprise development comes against a backdrop of devastation. Heightened talk of Athens's exit from the eurozone in recent months has not only led to credit lines drying up but has spurred ever greater numbers of panic-stricken citizens to pull their savings from banks.

Up to €5bn (£4bn) is believed to have been withdrawn from local lenders in the past two weeks alone, according to media reports. Following inconclusive elections on 6 May, up to €700m was removed by depositors in a single day.

"Last week was especially bad," said an official at the Bank of Greece. "People were pouring into our branch on Syntagma Square and literally emptying their accounts," he said, referring to the capital's main square.

Before the debt crisis erupted in December 2009, the country's total household and corporate deposits stood at €238bn. Since then €72bn has made its way out of the system, with the Bank of Greece announcing that deposits stood at €165.9bn in April.

Much of the money is believed to be hidden in private homes, the result of Greeks fearing they will lose savings if Athens is forced to leave the single currency. But a great deal has also been whisked abroad, with stories of depositors travelling with suitcases stuffed with cash now legendary.

This week, it emerged that leading foreign lenders, including Deutsche Bank and Merrill Lynch, had dispatched delegations to Athens to lure private Greek depositors and companies.

The staff of European and US banks were reportedly working from suites in central hotels in an attempt to convince high earners to move deposits abroad. "Foreign banks are 'fishing' for Greeks and their savings," declared a headline in the mass-selling daily Ethnos.

With the ballot widely seen as a referendum on the crisis-hit country's future in Europe, bank officials say they expect outflows to increase dramatically if the leftist party, Syriza, emerges as the winner.

The party's leader, Alexis Tsipras, reiterated that while Syriza was not aiming to leave the euro, it would rescind the unpopular austerity and structural reforms that Greece has undertaken in return for rescue loans from the EU and IMF if it came to power.

"The memorandum will be repudiated by the people's vote, not us," he told Antenna TV.

Tsipras has blamed Greece's "violent internal devaluation" for deepening poverty in a country struggling with a fifth straight year of recession. By the end of the year, officials project that GDP will have shrunk by around 27% – an unprecedented contraction for an advanced western economy.

On Thursday, the nation's statistics service revealed that the jobless rate, already at a record high, had jumped to 22.6% in the first quarter of this year because of the slump in economic activity.

With Athens being asked to enact more austerity measures – including reducing the minimum wage by a further 22% – the process of aggressive internal devaluation will only get worse, experts say.

"With wage reductions of up to 50%, what has remained of the middle class is trying to stay calm," said Theodore Pelagidis, professor of economics analysis at the University of Piraeus.

"Tell me one country in the world that with so much austerity would be in a better situation? This is not creative destruction. It is destruction, period."

From Greek industries, fast running out of raw materials, to supermarkets where stocks have been depleted, shortages are growing.

In recent weeks the healthcare system has been hit by a "critical lack" of medicines and other essentials including syringes and gauze, according to doctors. Shortages have been blamed on suppliers refusing to provide goods without down-payments in cash.

Highlighting the parlous state of the country's public finances, Giorgos Zanias, the economy minister in the interim government, announced this week that reserves were drying up at a dramatic rate. The political paralysis spawned by the country's indecisive vote last month had delivered a devastating blow to tax collection, with revenues falling precipitously. Greece, Zanias said, had "enough money to survive until 15 July". After that, it would be unable to pay public sector wages and pensions.

"Whatever government emerges from the elections will be called to confront a tragic situation in Greece," proclaimed the satirical weekly To Pontiki in an extensive report that was anything but funny.