Eurozone crisis
Greek banks 'close to collapse'
- by: Peter Wilson, Europe Correspondent
- From: The Australian
- May 19, 2012 12:00AM
THE Greek banking system could collapse before the country holds a repeat election in four weeks' time, one of Europe's most senior bankers warned yesterday.
As Greek politicians argued over whether a victory for anti-austerity parties in the June 17 election would force the country out of the euro, HSBC chief executive Stuart Gulliver said the country's financial system might not even last that long.
"A month is a very long way away. Markets (could) take things into their own hands before June 17," said Mr Gulliver, whose bank is the biggest in Britain. His warning came as anxiety grew about possible runs on banks in Greece and Spain, with the Fitch ratings agency warning all 17 eurozone countries faced credit downgrades and higher borrowing costs if the election result threatened Greece's place in the euro.
Moody's downgraded 16 Spanish banks over fears that their government would be unable to protect them from "contagion" after a Greek euro exit, and Madrid was forced to deny that account-holders have already started to pull money out of Bankia, the country's third-largest bank.
Greece has only 2.2 per cent of the EU's population but its election will be more closely watched than any in its history because of fears that a win for anti-austerity parties could shake the whole euro project and cause a new global credit crunch by seeing the first departure from the eurozone.
Richard McGuire, a bond strategist at Rabobank, said the Greek crisis was hurting other vulnerable countries because even though it was only a small economy, Greece "is as important to the eurozone as a plug is to a bath".
Some analysts predicted that a messy Greek exit from the euro could cost the eurozone a staggering €1 trillion ($1.280 trillion), pushing the continent into several more years of recession.
The fears over the euro yesterday led US President Barack Obama and British Prime Minister David Cameron to intervene by pressuring Germany and France to take bolder action to promote growth in Europe and patch up the weaknesses in the euro.
Mr Cameron used a video conference between the leaders of Europe's four largest economies, Germany, France, Britain and Italy, to say the eurozone countries must strengthen financial firewalls to stop the Greek situation becoming a global problem.
And the White House made it clear that at the G8 summit in Maryland this weekend Mr Obama would side with new French President Francois Hollande on his calls for Germany to allow an easing of Europe's austerity drive. G8 leaders and "sherpas" who would usually struggle to name Greece's finance minister were anxiously studying the prospects of the small hard Left and far Right parties, which prospered in the country's May 6 election by promising to break the "barbaric" bailout conditions imposed on the country by the eurozone and the International Monetary Fund.
Polls show that those parties, especially the radical Left Syriza, would do even better in the repeat election, which was called after coalition talks ended in deadlock.
The campaign began yesterday with a backlash by Greece's traditional ruling parties New Democracy and Pasok against the claim by Syriza's firebrand leader Alexis Tsipras that Greece could have it both ways, rejecting the austerity measures but staying in the euro.
That debate is the central battleground of the campaign, as polls show that three-quarters of Greeks want to remain in the euro but most believe Mr Tsipras's argument that Greece's neighbours would not dare to punish it for breaking its austerity promises because of their fears of contagion.
Antonis Samaras, leader of Syriza's main rival, the centre-right New Democracy, said Mr Tsipras was lying by pretending Germany, other European nations and the IMF would back off from their declarations that breaking the bailout agreements would mean default and an exit from the euro.
The election "is about whether Greece will remain in Europe, a Europe which is itself changing, or if Greece will be found to leave Europe, losing much and risking even more," Mr Samaras said.
Breaking the commitments that Greece gave in return for €240bn in bailout funds would mean a return to the drachma, which would halve bank savings, wages and property prices, he said.
"This is the nightmare that those who speak of a unilateral condemnation (of the loan agreement) will bring ... the horror and isolation of a euro exit and the collapse of all that we have built."
Mr Tsipras said his rivals and Greece's foreign lenders were all bluffing the Greek people to try to "blackmail" voters into sticking with the austerity program of cuts to pensions, wages and public spending. "They are trying to terrorise the people to make Syriza cave in. We will never compromise," he said. "The Greek people voted for an end to the bailout and barbaric austerity. We are certain they will do the same (again)."
boz 
cobran20, on 18 May 2012 - 11:56 PM, said:
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