The Washington Post

Greece forms emergency government amid banking fears

With Greece’s future in the euro increasingly in doubt, this troubled nation cobbled together an emergency government Wednesday and set a date for new elections amid fears that accelerated withdrawals by spooked depositors could escalate into a run on the banks.

Greek banking officials said the pace of withdrawals slowed Wednesday, a day after President Karolos Papoulias — the ceremonial head of state — conceded that almost $1 billion worth of deposits had been withdrawn or converted into safe-haven German bonds in recent days.

In comments that appeared aimed at calming speculation of a pending Greek exit from the euro, German Chancellor Angela Merkel called for Greece to remain part of the region’s common currency, but she also opened the door to new “stimulus” efforts to aid the economy here.

Yet Merkel — who has championed austerity as a cure for Europe’s debt crisis and whose taxpayers are footing the biggest portion of the bailout here — was also quick to add that Greece must live up to its commitments to make tough economic changes and spending cuts in exchange for its $165 billion rescue.

“I have the will, the determination to keep Greece in the euro zone,” Merkel said in an interview with CNBC. “It would be good for all of us.”

She added, “If Greece believes that there is certain stimulus for growth to be pursued in the euro zone, we’re open to this.”

Her comments underscored the fine line being walked by European leaders seeking to hold together the 17-nation euro zone while also forcing Greece, its most profligate and fragile member, to make sweeping reforms.

Merkel spoke as fresh fears were brewing over Greece’s banking system, where deposits have now fallen to $214 billion, down from $236 billion as recently as December.

The European Central Bank has cut off some Greek banks from its main lending programs because they are so weak, forcing them to rely on other forms of emergency help. A recapitalization of Greece’s banking system is part of the international bailout program, but officials have been slow to agree to the details.

Papoulias said that nearly $1 billion left in recent days as uncertainty has grown after the inconclusive May 6 elections. Those divided results, including new support for parties against the bailout deal, left politicians unable to form a new government and raised doubts about the will in Athens to stick to the terms of its agreement with the European Union and the International Monetary Fund.

However, two senior Greek banking officials, who spoke on the condition of anonymity given the sensitivity of the issue, said that recent withdrawals have not reached the pace seen in February, just before Greece staged an orderly debt default with private investors. There were no obvious lines outside banks in Athens on Wednesday, though money is also being shifted around online.

“This isn’t a panic, but we have to make sure it doesn’t turn into one,” said one of the banking officials. “For that, we need our politicians to do better than they are today.” The second official added that the outflow of deposits had slowed Wednesday as a date was set for new elections — June 17 — and as Merkel seemed to offer more solidarity with Greece.

Merkel appeared to be dialing down some of the pressure on Greece in her comments Wednesday. But her finance minister, Wolfgang Schaeuble, has held a harder line. The mixed message may be intended to keep up pressure on Greek politicians while quietly signaling a compromise route.

“We have laid down the program for Greece very carefully,” Schaeuble told Deutschlandfunk Radio on Wednesday. “And now the question is whether Greece is ready to accept these conditions. . . . You cannot have your cake and eat it, too.”

Whether Greek and German leaders can come to an understanding is not yet clear. Many Greek politicians appear to believe that Europe is ready to reopen the bailout’s terms for wholesale renegotiation.

In Germany, meanwhile, Merkel and other leaders have said that they still think that opening the Greek labor market, reducing government spending and privatizing state-owned industries remain the best path to getting the country’s economy back on track.

In the meantime, Greece is in a political vacuum, with the government hobbling along under the direction of a little-known senior judge, Panagiotis Pikrammenos. Appointed on Wednesday, he is charged largely with shepherding the nation into next month’s vote and will be unable to take any significant action.

Fears that the vote could be equally inconclusive, or yield a government opposed to the terms of the bailout, have escalated concern that the country might be forced out of the euro.

Although many Greeks are bitter about the bailout terms and the free-falling economy here, few are in favor of leaving the euro. Many see it as the only thing they can count on in a country mired in political and economic chaos.

“I am scared. Who isn’t?” said Alexandros Kaklamanis, 37, a construction company owner in Athens. “If I did not have cash flow issues with my company, I would be looking for a safe haven for my savings, too.”

Birnbaum reported from Berlin.

Anthony Faiola is The Post's Berlin bureau chief. Faiola joined the Post in 1994, since then reporting for the paper from six continents and serving as bureau chief in Tokyo, Buenos Aires, New York and London.
Michael Birnbaum is The Post’s Moscow bureau chief. He previously served as the Berlin correspondent and an education reporter.

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