"It is not only Greeks who are worried about their savings," Beirut's Daily Star reported early Saturday.[1]  --  "Data shows [sic] depositors have also taken flight from banks in Belgium, France, and Italy," Steve Slater and George Georgiopoulos said.  --  "And on Thursday, Spain’s Bankia was reported to have seen more than 1 billion euros drained by its customers in the past week."  --  "Greece’s banks have lost 72 billion euros in deposits since the start of 2010, or about 30 percent, according to data compiled by Thomson Reuters."  --  CNN reported that an economist at UBS bank predicted that Greece's exit from the eurozone would casue "bank runs across multiple countries."[2]  --  A survey of what experts predict would be the consequences of Greece quitting the eurozone by The Week revealed the remarkable uncertainty that exists, in part because "[n]o one is really sure how much global banks and governments are exposed to Greek debt."[3]  --  A Reuters columnist said that at its current rate the run on Greek banks was "probably manageable" but that it could easily spin out of control before Greeks go the polls again on Jun. 17.[4]  --  In an editorial published late Friday, the London Guardian said that "the situation Mr. Obama and his colleagues [at the G8 summit] confront is potentially even more grave than the one they faced in those early months after Lehman Brothers collapsed."[5]  --  "However amazing it is to imagine, it is not hyperbolic to say that the euro stands on the verge of a death spiral -- and that there are precious few opportunities left to pull it back from the brink.  It is not simply the very real prospect of Greece leaving the single currency; it is also the palpably distressed condition of Spanish banks."  --  The Australian Financial Review said that "Not one of those leaders attending the G8 summit will be in any doubt that the world is once again on the brink of unpredictable – possibly uncontrollable – events."[6]  --  Tony Walker bemoaned a global "leadership vacuum" the likes of which has not been seen in seven decades....




By Steve Slater and George Georgiopoulos

Daily Star (Beirut)
May 19, 2012


[INSET: BANK EXPOSURE TO EUROPEAN DEBT.  GREECE: France $44.4b.  Germany $13.4b.  Britain $10.5b.  Portugal $8.1b.  U.S. $4.5b.  Netherlands $3.5b.  Austria $2.3b.  Italy $2.2b.  SPAIN: Germany $146.1b.  France $114.7b.  Britain $83.1b.  U.S. $45.9b.  Italy $27.7b.  Portugal $23.1b.  Japan $21.7b.  Switzerland $21.3b.  Source: Bank for International Settlements (data at end-Dec. 2011), consolidated foreign claims of reporting banks (ultimate risk basis).]

LONDON/ATHENS -- Greek savers may be gripped by a “great fear that could develop into panic” in the words of President Karolos Papoulias, but many Greeks shifted their money to safer havens in Britain, Switzerland, Germany, and Nordic countries long ago.

Worries about a run on Greek banks have rattled Athens this week, after savers withdrew at least 700 million euros on Monday alone, according to minutes of Papoulias’s comments to political leaders posted on the presidency’s website.

It is not only Greeks who are worried about their savings.  Data shows depositors have also taken flight from banks in Belgium, France, and Italy.  And on Thursday, Spain’s Bankia was reported to have seen more than 1 billion euros drained by its customers in the past week.

Greeks are afraid they could be hit by rapid devaluation if the country leaves the European single currency, while customers at Bankia have been rattled by the government’s takeover of the recently floated bank on May 9 and growing uncertainty about the final cost of Spain’s banking reforms.

In Greece, sources at two banks told Reuters that withdrawals on Tuesday had taken place at about the same rate as on Monday.

“The entire Greek banking system is in danger:  The banks are now facing the worst of all outcomes, deposit flight,” said Arnaud Poutier, deputy CEO of IG Markets France.

That flight started at least two years ago, as the crisis grew more serious.

Greece’s banks have lost 72 billion euros in deposits since the start of 2010, or about 30 percent, according to data compiled by Thomson Reuters.  Five of Greece’s top banks saw 37 billion euros taken out last year, including 12 billion from EFG Eurobank and 8-9 billion apiece at National Bank of Greece, Piraeus, and Alpha Bank.

In February, Evangelos Venizelos, finance minister at the time, said only 16 billion euros had gone abroad, with a third of that going to Britain.

Savers have shifted to property, gold, and other banks, or stashed it privately.

In Greece, this slow-speed run on deposits has not caused panic.  But that could quickly change if there is a sudden loss of confidence in the banks.

Savers lost faith in Britain’s Northern Rock overnight in September 2008, queuing for hours in the days that followed to take out their cash, despite a guarantee safeguarding most deposits.  The British government ended up nationalizing the bank.

“It [Greek withdrawals] is not a huge number in percentage terms, but it is still a very worrying story.  But deposit flight has been going on for two years.  What we are seeing in the eurozone is a slow-motion bank run,” said Michael Riddell, fund manager at M&G International Sovereign Bond Fund.

Deposits shifted around Europe dramatically last year, analysis of data from more than 120 listed European banks show.

More than 120 billion euros was taken from two banks in Belgium alone, including an exodus of customer deposits from Dexia, which had to be bailed out and restructured. KBC also saw a big outflow.

Some 90 billion euros was taken from France’s banks, including around 30 billion each from Crédit Agricole and BNP Paribas.  French banks were hit last year by their heavy exposure to Greece and concerns about their liquidity.

Worries the eurozone crisis would spread also saw about 30 billion euros in deposits leave Italian banks, although inflows to BBVA helped limit the net outflow from Spain.

Cash flooded into Britain; more than 140 billion euros was deposited in four big banks alone.  The U.K. benefits from its position outside the eurozone and its Asia-focused banks HSBC and Standard Chartered are seen as safe havens.

Other banks to see big inflows included Barclays, Germany’s Deutsche Bank, Switzerland’s Credit Suisse and UBS and Russia’s Sberbank and VTB.
--A version of this article appeared in the print edition of The Daily Star on May 19, 2012, on page 6.



By Antonia Mortensen (Athens) and Mattew Chance (Berlin)

May 16, 2012


Greece will hold new elections on June 17, state media reported Wednesday, amid a political and economic crisis that could have effects far beyond the country's borders.

News of the election date came as Greeks pulled hundreds of millions of euros out of the banking system amid fears that the country will not be able to stay in the European Union's single currency.

Just 10 days ago, Greeks voters punished the major parties for harsh budget cuts, leaving no party able to form a government.

A caretaker administration led by a senior judge will run the country until the new vote.

Interim Prime Minister Panagiotis Pikrammenos was sworn in Wednesday.  The president's office said Cabinet ministers will take their oaths of office Thursday morning.

The political deadlock is leading to fears that Greece will not have a government in place when it needs to make critical debt payments, which could in turn jeopardize its place in the eurozone, the group of 17 European Union countries that use the euro currency.

And a Greek crisis could spread, one analyst warned.

"If Greece exits the euro it won't be alone.  Others will exit," said Paul Donovan, a global economist with UBS bank.

"There would be bank runs across multiple countries," he predicted.  "Citigroup, for example, may not be exposed to Greece, but it may be exposed to Portugal, Spain, France. . . . It may be exposed to a company that's exposed to France, or exposed to exports to EU."

In a worst-case scenario, he said, "you're talking about widespread defaults in the corporate sector as well as the sovereign sector.  It becomes very problematic."

Even so, most major European stock markets ended the day Wednesday virtually unchanged.

European leaders were united Wednesday in saying they want to help Greece stay in the euro.

As Greek politicians met Wednesday to set the new election date, German Chancellor Angela Merkel said she regrets the suffering of the Greek people in the face of harsh government budget cuts.

"It's very bitter, obviously," she said of the austerity measures that have left some Greeks struggling to pay for food or utilities.

But, she said, "Sacrifices had to be made. . . . I think these are necessary measures that had to be taken."

Merkel, a champion of forcing governments to balance their budgets in order to promote stable economic growth in Europe, did offer possible assistance to Greece.

"Europe needs to show solidarity and help, particularly with growth, unemployment, and development," she said.

The head of the European Union's executive body, the European Commission, said Wednesday that Greece is "part of our family," and that the E.U. will do what it can to keep Greece in the euro and the union.

But the final decision has to come from the Greek people, Jose Manuel Barroso said.

"We are fully aware that the present situation is asking a lot of the Greek people, with many sacrifices.  But this is a result of policies made in the past," he said.

"The program for Greece is the least difficult of all the difficult alternatives.  The problems it addresses are real," he warned.

Merkel and Barroso spoke after Greeks withdrew hundreds of millions of euros from banks, prompting the president of Greece's central bank to warn that panic is possible, but is not taking place.

Greeks pulled about 800 million euros out of the banking system Monday, President Karolos Papoulias said.

He said he had spoken to Central Bank Governor George Provopoulos about it.

"There is, of course, no panic, but there is fear that could develop into panic," Papoulias said, describing what the bank governor told him.  "He also said that the strength of banks is very weak at the moment."

The Greek debt crisis threatens the stability of the European Union's single currency.

Europe is worried that Greece could fail to make debt payments as early as next month, which could force the country out of the euro.

Merkel said she is working to keep Greece in the eurozone, but she refused to be drawn into talk about what would happen if Greece did not meet its debt obligations.

The head of the European Central Bank echoed Merkel's remarks.

"I want to state that our strong preference is that Greece will continue to stay in the euro area," Mario Draghi said in a speech in Frankfurt on Wednesday.

The European Central Bank and International Monetary Fund have been pumping money into Greece to keep the country in the euro, but they have demanded that the Greek government slash spending to get the funds.

Radical leftist leader Alexis Tsipras, whose Syriza party reaped the benefits of voter frustration with the austerity measures, urged Greeks on Tuesday to continue resisting "the parties of the bailout."

"They asked us to leave the country without any hope," he said, arguing that the May 6 election had made the terms of the bailout "null and void."

New Democracy leader Antonis Samaras, meanwhile, said his party will "keep fighting for a developing Greece within Europe" and "against those who say they want to get Greece out of Europe."

His party narrowly came in first in the May 6 elections, but opinion polls since then have suggested that Syriza would finish in first place in a new election.

--Matthew Chance reported from Berlin, and Antonia Mortensen reported from Athens. CNN Business Producer Katy Bryon, CNN's Per Nyberg and journalist Elinda Labropoulou contributed to this report.


Europe's economic crisis



** As Greece veers toward a eurozone exit, depositors are draining their bank accounts, and European leaders are beginning to plan for a post-Greece future **

The Week

May 17, 2012


Greece's inconclusive elections in early May, which produced a splintered field that could not cobble together a government, have thrust the debt-ravaged country into deeper chaos.  New elections are expected on June 17, but few predict they'll yield a stable coalition willing to carry out the E.U.-demanded austerity measures needed to keep Greece in the euro currency bloc.  Since the election, panicked depositors have withdrawn 3 billion euros ($3.8 billion) from their checking accounts, and as much as 800 million euros on a single day earlier this week.  Meanwhile, the European Central Bank (ECB) says it will no longer lend to certain Greek banks, a signal that the ECB is limiting its exposure to Greek risk.  As Greece approaches the precipice of a euro exit, many around the world are wondering what would happen if Greece actually takes the plunge.  Here, six predictions on how a euro exit would play out:

1. Greece would revert to its old currency

Greece would almost certainly re-adopt the drachma, converting all euro-denominated bank accounts, domestic debts, mortgages, and other contracts, and prices of goods at a one-to-one ratio, says Gabriele Steinhauser at the Wall Street Journal.  The process of actually printing new notes and coins, and disseminating them to the public, could take as long as four months, and in the interim, electronic payments or a temporary currency could be used.

2. The drachma could really help Greek businesses . . .

The Greek drachma would likely plunge in value on the currency market, says Steinhauser.  And that would actually benefit many Greek businesses, since Greece's exports would suddenly be cheaper and more competitive than those of European rivals.

3. . . . but devastate ordinary Greeks

Meanwhile, citizens would be left with a weak currency and higher prices for oil and other imported goods.  Plus, debts to foreign businesses, denominated in euros, would be even harder to pay back, and "bankruptcies would cascade through the system," says Clive Crook at Bloomberg.  The drachma's weakness could also lead, "in the worse case, to hyperinflation."

4. Europe might be immune to Greece's exit . . .

"Many experts believe an eventual departure of Greece from the eurozone is already priced into stocks, bonds, and currencies," says Paul R. La Monica at CNN.  This theory holds that the crisis has been dragging on since early 2010, and global investors have already written Greece off.  For them, it's always been a question of when, not if, Greece will exit.

5. . . . Or the European Union could fall apart

The real danger posed by Greece's exit is a loss of confidence in other debt-embattled countries, says Crook.  If the borrowing costs of Portugal, Spain, and Italy shoot up, then they, too, could leave the euro.  And "if the euro falls apart, the unraveling of the European Union -- again unthinkable, until now -- becomes distinctly possible."

6. And losses could spread across the globe

No one is really sure how much global banks and governments are exposed to Greek debt.  "Many of Greece's bad debts have already been socialized" by the ECB and the IMF during Greece's bailout, says Timothy Garton Ash at Britain's The Guardian.  So if Greece defaults, Germany and other European nations that hold Greek bonds "would end up footing part of the bill."  And remember, it was only a week ago that JPMorgan Chase revealed a billion-dollar loss on bad bets involving European debt, says La Monica.  The worldwide cost of a messy Greece exit could climb as high as $1 trillion.




By Hugo Dixon

May 18, 2012


So the world has to wait until June 17 to find out whether Greece stays in the euro?  Not so fast.  Things might come to a head even before the next poll if deposit flight accelerates.

Greece’s president said earlier this week that 700 million euros had left the country’s banks on Monday.  The pace seems to have accelerated, as savers get more concerned that the political mess will drive Greece out of the single currency.  Deposit flight is now running at 1-1.5 billion euros a day, according to one senior banker.  If it continues at that rate, another 20-30 billion euros could have left before election day.

Such an outflow is probably manageable.  After all, Greece’s bank support fund is to inject 18 billion euros of capital into lenders next week.  The real problem would be if there was a panic and say half of the system’s remaining 160 billion euros or so of deposits tried to flee.

The European Central Bank has already made 127 billion euros of liquidity available to the Greek banks -- both directly through its own refinancing operations and by authorizing the Greek central bank to offer emergency liquidity assistance.  So it would anyway face massive losses and require recapitalisation in the event of a Greek exit.  But if those losses mushroomed in a matter of weeks, the ECB’s credibility would be badly damaged.

But stopping liquidity isn’t attractive either.  The Greek government would have to impose capital controls even before the electorate had a chance to vote.  That conceivably might concentrate the voters’ minds.  But it could also stir up anti-euro feelings in Greece and provoke a panic in other peripheral countries.

The ECB won’t want to take such a momentous decision on its own and so will probably push for political cover for what it does.  One way of doing this would be to tell eurozone governments it will pull the plug on Greece unless they indemnify it against any further losses it incurs.  The governments, of course, won’t like being put on the spot either.  Everybody will be hoping the run does not accelerate.




** Europe needs to go in for a proper restructuring of its banking sector along the lines of that executed by Gordon Brown and Alistair Darling in 2008-09 **

Guardian (London)
May 18, 2012


History suggests that the last place one would look for the resolution of a crisis is a summit of world leaders.  Yet every so often summits can pave the way to a sea change in policy.  The G20 meeting in London presided over by Gordon Brown in the spring of 2009 agreed an impressive-sounding trillion-dollar boost to the world economy, but more importantly sealed a deal between the leading powers that they would each spend more until the specter of recession was warded off.  Similarly, the first G20 summit that David Cameron attended as prime minister in 2010 marked the point at which Europe and America parted ways on economic policy.

Two summits, two opposing results, yet each hugely significant.  Let us hope that the G8 meeting kicking into gear in Washington this weekend is of a similar rank of importance.  Certainly, the situation Mr. Obama and his colleagues confront is potentially even more grave than the one they faced in those early months after Lehman Brothers collapsed.  However amazing it is to imagine, it is not hyperbolic to say that the euro stands on the verge of a death spiral -- and that there are precious few opportunities left to pull it back from the brink.  It is not simply the very real prospect of Greece leaving the single currency; it is also the palpably distressed condition of Spanish banks (as suggested by this week's credit-rating downgrade for 16 of them, and the collapses in their share prices), and of so many others across Europe; plus the long-standing issue that Spain and Italy and a number of other countries are now finding it increasingly difficult to get the loans they need from financial markets.

On its own, the ejection from the euro of a country worth only around 2% of the club's GDP would still be shocking and chaotic.  But put it together with the fragility of confidence -- financial, business, political, and public -- across the continent and you have a recipe for chaos on a scale that would make the 2008 bonfire of the banks look like a relatively pleasant memory.  Against this backdrop, the tasks that face the G8 are large, but they can be broken down into three:  financial, economic, and political.  Each can be easily clarified, but they will require huge expense of capital, both financial and political, to carry out.

The financial part of resolving the euro crisis has to begin by acknowledging that the continent's crisis revolves around its banks.  Spain went into the financial crisis with very modest public debt, which increased sharply as the government had to deal with a housing and banking bust.  Even now, a large part of the reason why Madrid remains a candidate for a financial rescue line from the rest of Europe is because if its banking sector suffered a big collapse, the government would have to step in.  In other words, the banking sector debt is de facto a contingent debt on the government's balance sheet.  This is madness, but it is also highly dangerous.  To sort this out, Europe needs to go in for a proper restructuring of its banking sector along the lines of that executed by Gordon Brown and Alistair Darling in 2008-09.  Since crisis-stricken southern Europe does not have the resources to do this, it will have to be done on an international basis with funds contributed by other countries.

The economic part of rescuing the euro begins by halting the counter-productive austerity programs, and agreeing a collective fiscal-stimulus package to be led by Germany.  Ms. Merkel can borrow at record-low interest rates from the financial market:  this is money that should be used to revive the euro area.  Finally, Europe's political classes need to realize that a continent that now revolves around a failing euro project, and one that demands its member nations engage in destructive austerity, is doomed to political as well as economic failure.  The euro project needs to be reimagined as something altogether more positive.



By Tony Walker

Australian Financial Review

May 19, 2012


Camp David has witnessed many epic moments in postwar history, including the initialling of the Camp David Accords during the Jimmy Carter presidency that ended a state of war between Israel and Egypt and encouraged the flickering prospect of a wider Middle East peace.

The U.S. presidential retreat, named for Dwight Eisenhower’s grandson, David, is again the focus of international attention this weekend as leaders of the Group of Eight, expanded over the years from the original six to include Canada and Russia, consider the consequences of a potential collapse of the euro zone, with all that that implies.

Not one of those leaders attending the G8 summit will be in any doubt that the world is once again on the brink of unpredictable – possibly uncontrollable – events that have spooked markets and called into question the survival of the euro zone based on a single currency.

This is a jolting train wreck that has the potential to be a longer-lasting event than the global financial crisis, as Europe grapples with vast inequalities between its various components and, indeed, the survival of the E.U. itself.

The risk is that G8 leaders of the US, Germany, France, the U.K., Italy, Japan, Canada, and Russia, with the European Commission as an ex officio member, will find themselves dwarfed by the twin challenges of how to arrest Europe’s slide and stop a spreading contagion beyond the continent that will batter the global economy.

Economists have a phrase to describe the phenomenon:  it is called a “negative feedback loop," in which a downward spiral reinforces itself in the sense that a European banking contagion proves ever more difficult to contain and ends up contaminating the rest of the world.  The Greek crisis is the most immediate manifestation of the European sickness, but Spain, Italy, and France are all vulnerable.

Britain, which is not part of the euro, is becoming increasingly anxious about events across the Channel, as well it might given its own difficulties with an economy sliding back into recession as an austerity program bites.

As the week drew to a close, British Prime Minister David Cameron gave voice to these jitters as he prepared to leave for the U.S. presidential haven in Maryland.  “We are in uncharted territory, which carries huge risks for everybody," Cameron told a business audience.

A few days earlier, the governor of the Bank of England, Mervyn King, warned that Europe in the shadow of the Greek crisis was “tearing itself apart."

Much of the discussion at Camp David will revolve around strategies to combat renewed risks of a global recession, with the U.S. pushing its European partners to expand their stimulus programs, against resistance from the frugal Germans, who fear good money will be sent after bad and invite what Germany, with its Weimar memories, fears most -- inflation.

Demands that the European Central Bank flood the euro zone with trillions of euros of stimulus find little favor in Germany, where Chancellor Angela Merkel is under enormous pressure to resist the blandishments of her European partners.

The mass circulation Bild, which occupies a place in Germany not dissimilar from the Daily Telegraph and Herald-Sun combined, ran a front page headline the other day, “Inflation Alarm," accompanied by a story inside illustrated with a picture of a 1-trillion-mark note from 1923, the high point of German hyperinflation.

Not least of concerns in Europe is that a spreading economic crisis is fuelling support for parties of the extremes, whose preoccupations, including an anti-immigrant stance, will further shred a fragile consensus in places where these forces are taking root, including Greece.

All this might be manageable if the world was better served by its leaders, but if the global economy is on the brink of a renewed crisis so is global leadership enmeshed in a difficult transition as U.S. power recedes, relatively speaking, and China rises.

At Camp David, and subsequently at a back-to-back NATO summit in Chicago and next month at a G20 meeting in Mexico, the U.S. will remain “first among equals" but its own economic difficulties and political preoccupations in an election year mean that Washington will inevitably be distracted.

These are dangerous times, captured by Eurasia Group president Ian Bremmer in a contribution to the latest *Foreign Policy* magazine titled, “Welcome to the New World Disorder: The G8 is not about to save the world.  It’s time the United States started planning for the G-Zero."

Bremmer’s thesis is that for the first time in seven decades, since Bretton Woods processes in the dying days of World War II gave rise to the post-war financial architecture of the International Monetary Fund and World Bank, the world finds itself in a leadership vacuum.  “Today, there is no single power, or alliance of powers, capable of providing consistent international leadership," he writes.

Unfortunately, Bremmer is right.