'Greece on verge of collapse'

Mainstream media is using the “C'-word!

Greece on brink of collapse

Europe’s financial crisis lurched into a perilous new phase as dire predictions emerged of a collapse in Greece’s economy, with a run on its banks bringing an inevitable end to its membership of the euro.

The Telegraph,

15 May, 2012

As leaders in Athens accepted the need for a new general election to end a national stalemate, 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. On the stock markets, the Eurostoxx 600 fell 0.7 per cent to a year-low; Germany’s Dax dropped 0.8 per cent and Spain’s Ibex was down 1.6 per cent. In London the FTSE100 slid 0.5 per cent. Following this month’s inconclusive election, Greek parties yesterday failed again to agree a new government. A new election, most likely to be held in mid-June, could see more gains for parties that want to reject the austerity measures that are a condition of international efforts to bail out the debt-crippled state.

Karolos Papoulias, the Greek president, warned party leaders that their continued failure to agree was risking “fatal consequences”. Citing a secret government document, he said Greeks were already pulling £80 million a day out of the country’s banks. Almost €1 billion (£795 million) has been withdrawn since the last elections on May 6.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 £240 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 today, 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”.