Greece to have new elections on June 17th, senior judge installed as caretaker Prime Minister
Greece put a senior judge in charge of an emergency government on Wednesday to lead it to new elections on June 17 and bankers sought to calm public fears after the president said political chaos risked causing panic and a run on deposits.
In a sharp blow to confidence, sources at the European Central Bank told Reuters it had halted liquidity operations with some Greek banks because their capital had been too far depleted. The move would mean those banks are no longer able to park assets at the ECB in return for cash, and would have to seek costlier emergency financing from the Bank of Greece.
It was not immediately clear which banks, or how many of them, were affected. One person familiar with the matter said the capital of four Greek banks was so depleted they were operating with negative equity capital.
Greeks have been withdrawing hundreds of millions of euros from banks in recent days as the prospect of the country being forced out of the European Union’s common currency zone seems ever more real – although there has so far been no sign of a run on bank branches in Athens.
European leaders who once denied vociferously that they were fretting over Greece leaving their currency union have given up pretence. Asked if he was concerned about a Greek exit, European Central Bank chief Mario Draghi said simply: “No comment”.
Political leaders failed to form a government following an inconclusive parliamentary election on May 6, leaving the state with its coffers almost empty and no elected cabinet in place to satisfy lenders it deserves the money needed to stay afloat.
President Karolos Papoulias, whose powers as head of state are limited, named supreme administrative court head Panagiotis Pikrammenos as caretaker prime minister. He will have no power to take political decisions, only to carry Greece into the vote.
The parliament that was elected on May 6 will convene on Thursday and be immediately dissolved, a presidency source said.
The interim leader is little known. State television said he was born in 1945 and studied law in Athens and Paris. A court source said he would name as few ministers as possible.
“Thank you for your trust, and I believe that I am worthy of this mission,” Pikrammenos said at a meeting with the president. “This is purely a caretaker government. However, it escapes no one that our country is going through difficult times.”
He repeated a joke he said he had read in the press, that his own name, which translates as “sorrowful” in English, made him suited to be the last prime minister of a political era.
A new poll confirmed what other surveys have shown: that radical leftists who reject a bailout agreed with the European Union and International Monetary Fund are poised for victory, and the two establishment parties that agreed the rescue are sinking further after an historic wipeout 10 days ago.
The leftists argue they can tear up the bailout and keep the euro, but European leaders say if Greece fails to meet promises to them, lenders will pull the plug on financing, driving Athens to bankruptcy and a swift exit from the EU single currency.
On Monday, according to an official account, the president told party chiefs that figures from the central bank headed by George Provopoulos showed savers had withdrawn up to 800 million euros ($1 billion) from banks.
“Mr. Provopoulos told me there was no panic, but there was great fear that could develop into a panic,” the president was quoted as saying in minutes of a meeting that failed to yield agreement on a cabinet.
“Withdrawals and outflows by 4 p.m. when I called him exceeded 600 million euros and reached 700 million euros,” he said. “He expects total outflows of about 800 million euros, including conversions into German Bunds and other such things.”
Several banking sources told Reuters similar amounts had also been withdrawn on Tuesday. Nevertheless, there was no sign of panic or queues at bank branches in Athens on Wednesday. Bankers dismissed suggestions that a bank run was looming.
A senior executive at a large Greek bank told Reuters: “There is no bank run, no queues or panic. The situation is better than I expected. The amount of deposit withdrawals the president mentioned referred to three days, not one.”
Still, some were taking no risks. A 60-year-old textiles store owner who gave his name only as Nasos said he had transferred 10,000 euros over the phone to a bank in fellow euro zone state Cyprus on Tuesday afternoon.
“Any way you see it, things are difficult. If they call elections on June 17 – a Sunday – then everyone will take their money out on the Friday.” That June 17 date was later confirmed.
Charles Dallara, chief negotiator for the body representing private sector holders of Greek bonds, said there had been “a pickup in deposit flight from Greece”.
Dallara, who as head of the International Institute of Finance spent months negotiating the largest ever sovereign debt restructuring, said a Greek exit from the euro zone would be “somewhere between catastrophic and Armageddon” for Europe.
Greeks have already been withdrawing their savings from banks at a sharp clip – nearly a third of bank deposits were withdrawn between January 2010 and March 2012, reducing total Greek household and business deposits to 165 billion euros.
A senior bank executive said there had been withdrawals in recent days but there was no sign yet of a panic, as had happened in April 2010 when 8 billion euros were withdrawn just before Greece obtained its first foreign bailout.
Analysts predicted Greece would avoid a bank run, if only because so many people have pulled out their savings already.
“We have witnessed periods of tension before when the banks experienced large outflows. In my view, the majority of people with these concerns would have done so by now,” said Alex Tsirigotis, Greek banks analyst at Mediobanca.
Greek banks have made up for vanishing deposits on their balance sheets by accepting costlier European Central Bank financing through the Greek central bank.
The spectre of Greece quitting the single currency sent the euro and European shares to a fresh four-month low on Wednesday and raised the yields on Spanish and Italian debt, reflecting the risk that other European countries will be hurt.
Greece’s two wounded establishment parties hope to persuade voters that the election will be a referendum on the euro, which nearly 80 percent of Greeks say they want to keep. The view from Brussels is clearly that Greek euro membership is now at stake.
“It is important that the Greek people now take a decision fully informed about the consequences,” European Commission President Jose Manuel Barroso told a news conference.
“The ultimate resolve to stay in the euro area must come from Greece itself,” Barroso said. “We must tell the people that the program for Greece is the least difficult of all the difficult alternatives.”