With Greece "Nowhere Close" To Deal, Depositors Pull €300 Million From Banks In Single Day

On Tuesday, Greece postponed a scheduled Eurogroup meeting in Brussels without offering a reason as officials conducted “preparatory” discussions and held an evening teleconference with creditors. Face-to-face meetings will take place today with just 9 days to go until June 5 when Athens will miss a payment to the IMF, triggering an unprecedented default the repercussions of which no one can accurately predict. 

Also on Tuesday, Greek FinMin Yanis Varoufakis allegedly told Greek reporters that one measure under consideration to help stem the outflow of deposits from Greek banks was a levy on ATM withdrawals designed to encourage the use of credit cards over cash, a rather ironic suggestion coming from a government crippled by debt. The Finance Ministry was quick to deny that such a levy was being considered because after all, one way to ensure that ATM lines will get quite a bit longer is to suggest that depositors will soon be subject to a levy on withdrawals. Unfortunately, it appears as though the move to dispel the ATM tax “rumor” came too late because according to Kathimerini, deposit flight accelerated meaningfully on Tuesday. Here’s more

Statements suggesting the imposition of capital control measures over the upcoming long weekend, and Tuesday’s reference by the Finance Ministry to the possible imposition of a levy on cash machine withdrawals – later withdrawn – sent many to the ATM. At the same time, bank officials point to widespread concerns about the possibility of a rift between Greece and its creditors over the government’s failure to repay a scheduled installment to the International Monetary Fund next week.

 

Credit sector professionals reported that deposit outflows on Tuesday alone came to 300 million euros, against about 100 million euros per day in recent days. They said that while this amount is quite high, the situation is under control as citizens are remaining calm on the positive messages from Greek officials.

 

On Wednesday the ECB board is expected to decide on a fresh extension of the ELA mechanism following the addition of another 200 million euros last week to a total of 80.2 billion euros. Although pressure by certain ECB council members for a tougher stance toward Greece has grown, sources agree that the ECB will probably avoid making any decisions that could trigger any major developments.

Or perhaps not, because as it turns out, the ECB did not in fact raise the cap on the emergency liquidity lifeline that’s keeping the Greek banking sector afloat, opting instead to keep the ceiling unchanged at €80.2 billion which leaves banks with about €3 billion in remaining liquidity.

Ironically, the ECB cited “very limited deposit withdrawals over past week” as the reason for its decision suggesting that either Greek bank officials are lying about the severity of the outflow or Mario Draghi is deliberately tightening the screws in an effort to help creditors extract concessions from PM Alexis Tsipras. The prevailing assumption had been that the central bank would continue to incrementally raise the ELA cap (the average weekly increase had been around €1.5 billion before last week’s €200 million hike) until Greek banks exhausted their available collateral, said to amount to around an additional €13 billion. That would have allowed banks to offset deposit outflows through the end of July. Now, that assumption looks to be questionable. As a reminder, here’s what the cash situation looks like:

Meanwhile, some officials have now thrown in the towel, with Bloomberg reporting that a deal will not be reached by the end of this month as Greece is “nowhere close” to striking a compromise that’s acceptable to the IMF and the EU:

  • GREECE SAID LIKELY TO MISS MAY DEAL DEADLINE AS TALKS STALL
  • GREECE SAID TO BE NOWHERE CLOSE TO AGREEMENT WITH CREDITORS

This will come as no surprise to regular readers who will recall that the IMF and the European Commission are now keen to send a strong message in terms of granting no concessions in talks with Greece after anti-austerity parties staged an electoral coup in Spain in Sunday's regional and municipal vote. By making an example of Greece, the troika can effectively discourage other democratically elected governments from pursuing similar mandates and indeed, we're now seeing commentary that suggests giving in to Greece's demands would be worse than Grexit. 

Via Bloomberg (note that this is a Portuguese daily interviewing a German official):

The risk of contagion from Greece exiting the euro area is smaller than it was a few years ago, Christoph Schmidt, head of the German government’s council of economic advisers, is cited as saying in an interview done last week with Diario Economico.

 

Fearing a Greek exit to the point of accepting all the conditions that the Greek government demands would be a lot worse than an exit, paper cites Schmidt as saying.

And BlackRock has a similar message to the Greeks:

A Greek exit from the euro area is less disastrous than making concessions, Het Financieele Dagblad reports citing an interview with BlackRock CEO Larry Fink.

 

Says that if concessions are made, other countries may also demand them.

 

As an investor, he would be reassured by a decisive Europe.

 

Says it’s unacceptable Alexis Tsipras wants to reverse earlier agreements on reforms.

It's now abundantly clear that the IMF, Brussels, and Berlin will accept nothing less than a wholesale abandonment of Syriza's anti-austerity platform if Tsipras intends to walk away with a deal. Short of that, Syriza will be left to fight for their political life amid what will surely be a catastrophic economic collapse should the country be forced to revert to a parallel currency.

Either way, Greece's creditors will have achieved their goal of using financial leverage to suppress the anti-austerity germ — for now.