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Greek Euro exit looms as more banks collapse

Thursday, May 17, 2012



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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