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Bank withdrawals surge as Greece nears default

ATHENS/LUXEMBOURG: Bank withdrawals accelerated and government revenue slumped as Greece defied its international creditors Thursday, escalating a debt crisis that may reach a climax at a European Union summit next week.

Savers pulled out some 2 billion euros between Monday and Wednesday, senior banking sources told Reuters, double the amount that the European Central Bank granted Greek banks in extra emergency liquidity assistance for the whole week.

The IMF meanwhile dashed any hope that Greece could avert default if it fails to repay a 1.6 billion euro ($1.8 billion) loan by the end of June, piling pressure on Prime Minister Alexis Tsipras, who showed no sign of yielding to the lenders.

If deposit flight continues to outpace ELA, it could force Greece to impose capital controls, as Cyprus did in 2013, to ration withdrawals and stop money fleeing the country.

The 2 billion euros taken out in just three days represents about 1.5 percent of total household and corporate deposits of 133.6 billion euros held by Greek banks as of end-April.

Before this week, withdrawals had been running at 200 million-300 million euros a day.

A Finance Ministry spokesman declined comment on the latest capital outflows. A government spokesman said on television late Wednesday that there was no plan to introduce controls.

Eurozone finance ministers met in Luxembourg for a session once billed as the final chance to reach a cash-for-reform deal. Any expectation of a breakthrough vanished before the meeting with Athens, ruling it out as a forum to offer new proposals.

Tsipras, elected on a promise to end austerity, is demanding a “political level” bargain in which European creditors promise Greece debt relief before he will make any more concessions.

Irish Finance Minister Michael Noonan said any chance of a last-ditch deal to avert a Greek default hinged on a European Union leaders’ summit late next week.

EU officials said they would decide in the next day or two whether to hold an emergency summit of the eurozone on the sidelines of the regular EU summit Thursday and Friday.

Athens reported a steep 24.6 percent fall in its revenues in May, including a 50-percent fall in tax returns, even though the central government posted a primary surplus before debt service in the first five months of this year.

Finance Ministry officials said it was mainly due to a slump in tax payments by companies, hard hit by a return to recession.

IMF boss Christine Lagarde closed one of Greece’s last potential escape hatches, declaring that the global lender would consider Athens in default if it misses the June payment, despite reports there might be some leeway.

“It will be in default, it will be in arrears vis-a-vis the IMF on July 1, but I hope it is not the case, I really do,” Lagarde told reporters in Luxembourg. “There is no grace period or two-month delay, as I have seen here and there,” she said.

Greece confirmed Wednesday that the government does not have the money to repay the IMF loan, which is the first in a series of debt repayments over the summer.

German Chancellor Angela Merkel said a deal was still possible to provide Greece with additional funds if Athens showed the necessary will. French Finance Minister Michel Sapin also spoke optimistically at the Luxembourg talks.

But Tsipras – pointedly visiting Russia at a time of sour relations between Moscow and the EU – insisted creditor demands for pension cuts would worsen the economic crisis.

In a guest column for Der Tagesspiegel newspaper in Berlin, he sought to dispel what he called a “myth” that German taxpayers were paying Greek pensions and wages.

“The blind insistence of cuts [in pensions] in a country with a 25 percent unemployment rate and where half of all the young people are unemployed will only cause a further worsening of the already dramatic social situation,” he said.

A combination of a default and capital controls could set Greece on a path out of the eurozone and even the EU itself, the Greek central bank warned this week. It would be the first country to leave the currency area or the Union.

For its part, Russia quashed speculation that President Vladimir Putin – at loggerheads with the West over Ukraine – would ride to Greece’s rescue. A deputy finance minister told Reuters there had been no request for money from Greece, and Russia had no resources for such a bailout.

Ahead of the Luxembourg meeting, Sapin told reporters there was “real scope for convergence.”

“I want to dispel this idea that there are gigantic differences between the sides ... The differences can be overcome,” he said.

But the head of the Eurogroup of finance ministers of the currency area made clear he saw little prospect of a fast deal.

“I don’t have a lot of hope,” Jeroen Dijsselbloem said when asked if a deal could be reached at the meeting. “I have only one job to do today and it is to see whether we can bring that deal with Greece closer,” he said.

“It requires further steps from the Greek side because we need a solid deal. It needs to hold up, also in the coming years, and it needs to be credible for Greece and the eurozone. I am not sure whether we will make any progress.”

With European leaders and Greece’s central bank warning a possible “Grexit” was on the horizon, European shares fell and Greek shares hit a new three-year-low.

In a sign of growing nervousness among many Greeks about their country’s fate, pro-euro demonstrators planned a rally in central Athens, calling for an end to the deadlock. The previous day, anti-austerity protesters rallied in support of the government and against policies set by lenders.

“I’m still convinced: Where there’s a will, there’s a way,” Merkel told German lawmakers. “If those in charge in Greece can muster the will, an agreement ... is still possible.”

Merkel faces growing resistance in her ruling conservatives to granting Greece any more bailout money.

A narrow majority of Germans are now in favor of Greece leaving the euro area.

 
A version of this article appeared in the print edition of The Daily Star on June 19, 2015, on page 5.

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