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Financial markets rattled as Greece set for new elections in June; Withdrawal of deposits from Greek banks accelerated following Greek elections

16 May 2012

It was finally confirmed last night that Greek parties failed to reach an agreement on a coalition government, meaning new elections will be held, most likely on 17 June. New Democracy, PASOK and the Democratic Left blamed Syriza for the breakdown in the talks, alleging that the party is keen on another election as polls suggest it would emerge as the largest party. MPs elected into parliament on 6 May will be sworn in tomorrow, however, the Greek parliament will be dissolved again on Monday ahead of new elections, while a caretaker government will be appointed today.

Fears of a Greek exit from the euro increased further as an even stronger backlash against austerity is expected in the next election, with the prospect of another round of uncertain coalition negotiations also looks possible. IMF Director Christine Lagarde said yesterday that a Greek exit would be “messy” and warned against it but stressed that the IMF will be “technically prepared for anything.”

Greek President Karolos Papoulias warned yesterday that Greek Central bank Head George Provopoulos had told him that Greeks had withdrawn over €700m from Greek banks since the elections, marking a significant increase in the already worrying outflow of the deposit base of Greek banks. 

Greece confirmed that it had repaid in full a €435m bond which matured yesterday, marking a success for those bondholders which refused to take part in the Greek restructuring. The Greek government stressed that the move did not mean that it would pay out on the remaining €6bn in bonds which were not submitted to the restructuring.

Dutch daily Het Financieele Dagblad claims that, according to unnamed sources in Brussels, the ECB is reducing its lending to Greece at a significant pace. At the end of January, ECB lending to Greek banks totalled €73bn. The sources suggest this has now been halved with the slack being taken up by the Emergency Liquidity Assistance provided by the Greek Central Bank (but sanctioned by the ECB). Another article in the paper calculates that the exposure of eurozone countries, along with the ECB, to Greece is €350bn.

Open Europe’s Director Mats Persson was quoted in USA Today noting that Germany and other northern member states “are now daring Greece to quit the euro", while Open Europe’s Vincenzo Scarpetta appeared on Al-Jazeera English’s Inside Story and RTE’s Drivetime programme discussing the political situation in Greece and the possibility of Greece leaving the eurozone.
FT CityAM WSJ WSJ 2 Guardian Guardian 2 Telegraph Irish Independent FAZ BBC European Voice EurActiv Mail Kathimerini Kathimerini 2 Kathimerini 3 FAZ Irish Independent FT 2 FT 3 FT 4 CityAM 2 CityAM 3 Independent IHT Le Figaro Times BBC 2 BBC 3 IHT 2 FT 5 Het Financieele Dagblad Kathimerini 4 Bloomberg Der Standard USA Today RTE: Drivetime Al-Jazeera English: Inside Story Times: King Guardian: Jenkins FT: Barber FT: Frieda FT: Miller & Skidelsky CityAM: Heath WSJ Review & Outlook WSJ: Stephens Coulisses de Bruxelles

EU finance ministers yesterday reached a compromise on new bank capital rules. The IHT notes that, as part of the compromise, member states can impose stricter requirements on domestic banks for up to two years at a time and EU regulators would not be able to overrule a nation’s decision to do so unless they were backed by a qualified majority of EU finance ministers.
IHT EUobserver Irish Independent BBC EurActiv Corriere della Sera Council conclusions

New figures released by the EU’s statistics body Eurostat yesterday showed that the eurozone narrowly escaped recession in the first quarter of 2012, since Germany’s GDP grew by 0.5% from previous quarter and offset downturns in peripheral countries. France’s GDP remained unchanged.
Guardian Irish Independent FT CityAM WSJ

Hollande appoints German-speaking Prime Minister but remains firm on renegotiating the fiscal treaty
During the joint press conference following his first meeting with German Chancellor Angela Merkel, French President François Hollande reaffirmed his intention to renegotiate the fiscal treaty, saying, “Our method will be to put all the ideas on the table and then see what legal implications they can have.” However, Merkel stressed that “the [fiscal] treaty was signed by 25 countries in March.” Both leaders said that Germany and France want Greece to remain in the eurozone. Merkel said, “We’re ready to do everything we can…to help Greece structurally.” Hollande added, “People in Greece need to know that we will help them – through growth-enhancing measures, through support to [Greece’s] economic activity – to ensure their presence in the eurozone.” Before leaving for Berlin, Hollande appointed Jean-Marc Ayrault – who speaks German and is widely considered to be a ‘Germanophile’ – as his new Prime Minister.
Times Telegraph Guardian Guardian: Leader BBC EurActiv Times: Leader Les Echos Handelsblatt Reuters Independent IHT Welt Spiegel Le Figaro EUobserver Corriere della Sera Le Figaro: Delors and Vitorino FT

Spanish PM: There is a serious risk that the markets will no longer lend us money
Political instability in Greece and doubts over the real conditions of the Spanish banking sector continue to drive Spain’s borrowing costs up, with the interest rate on ten-year bonds reaching 6.5% this morning. Spanish Prime Minister Mariano Rajoy told the parliament this morning, “There is a serious risk that [the markets] no longer lend us money, or lend us money at astronomic prices.” He later told reporters that the EU institutions should send “a clear and convincing message in defence of the euro and a reaffirmation of the sustainability of the public debt of all European countries.”
El País El Mundo El Mundo 2 Il Sole 24 Ore El País 2 Expansión Cinco Días Público European Voice

Labour MP Jon Cruddas, appointed to lead Labour’s policy review, which will shape its next general election manifesto, has promised to use “every opportunity” to press for a vote on EU membership and prevent the issue “festering”. Meanwhile, a new YouGov poll out today found that public support for continued UK membership of the EU has slumped as a result of the eurozone crisis, with 34% of respondents in favour compared with 54% opposed.

European Voice reports that MEPs have adopted tighter rules on eurozone countries’ budgetary discipline, which would allow the European Commission to recommend that a struggling country should seek financial assistance. Negotiations with EU member states are expected to continue in the autumn.
European Voice  

Kathimerini reports that due to its participation in the write-down of Greek debt, Cypriot bank Laiki is in need of fresh capital amounting to around €1.8bn which the Cypriot state cannot provide at the moment, leading to speculation the country may ask for external assistance.

The FT reports that under plans being drawn up by Internal Market Commissioner Michael Barnier, shareholders in Europe’s listed companies and banks will be given a binding vote on executive pay and bonus levels.

German International Development Minister Dirk Niebel has said that the EU will sharpen its rules on aid spending, and that member states will be able to ensure that money will only be released when binding criteria on human rights and the rule of law are respected.
Open Europe Research: EU Aid Open Europe Research: European Neighbourhood Policy DPA Dutch government press release

Helicopter gunships from an EU task force hit Somali pirates on shore yesterday, in the first sortie since ground attacks were authorised in March.
Guardian Telegraph Times

The Irish Independent reports that a majority of German respondents were able provide the correct answers to a short survey about interest rates and inflation compared with only one third of Irish respondents.
Irish Independent

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