Agony in the Aegean

by Andrew Stuttaford
In one of the biggest banks in the centre of Athens a clerk is explaining how his savers have been thronging to pull out their cash. Wary of giving his name, he glances around the marble-floored, wood-panelled foyer before pulling out a slim A4-sized folder. It is about the size of a small safety-deposit box – and those, ever since the financial crisis hit Greece 18 months ago, have become the most sought-after financial products in the country. Worried about whether the banks will stay in business, Greeks have been taking their life savings out of accounts and sticking them in metal slits in basement vaults.

The boxes are so popular that the bank has doubled the rent on them in the past year – and still every day between five and 10 customers request one. This bank ran out of spares months ago. The clerk leans over: “I’ve been working in a bank for 31 years, and I’ve never seen a panic like this.”

Official figures back him up. In May alone, almost €5bn (£4.4bn) was pulled out of Greek deposits, as part of what analysts describe as a “silent bank run”. This version is also disorderly and jittery, just not as obvious. Customers do not form long queues outside branches, they simply squirrel out as much as they can. Some of that money will have been used to pay debts or supplement incomes, of course, but bankers put the sheer volume of withdrawals down to a general fear about the outlook for Greece, one that runs all the way from the humble rainy-day saver to the really big money. 

Not to worry, the new bosses are coming to town (according to Ekathimerini):

The European Commission has set up a task force to oversee the implementation of austerity measures and structural reforms, according to documents seen by Kathimerini.The task force, an initiative of European Commission President Jose Manuel Barroso, is to have two headquarters – in Athens and Brussels – and direct contact with Barroso’s office and that of Prime Minister George Papandreou. The Athens office will be the point of reference for all visiting inspectors currently offering technical advice to different ministries.

An additional 25 officials, members of the new task force, are to start arriving in Athens in the second half of August. The officials are to make any recommendations deemed necessary in terms of additional technical assistance and to issue three-monthly reports and warnings if the ministries are found to be diverging from targets.

The head of the new task force will be Horst Reichenbach, vice president of the European Bank for Reconstruction and Development and a former EC director general. Earlier this month, Barroso appointed Reichenbach to chair a committee that would help Greece use EU structural funds to boost growth. It appears that the remit of that task force has been broadened significantly.

According to sources, the decision to create the task force was prompted by the government’s failure to implement measures pledged in exchange for the first 110-billion-euro bailout in May last year. Greece’s creditors – the EC, European Central Bank and International Monetary Fund – clearly deemed that a foreign task force would help push through a new slew of measures approved.

It’s easy to make the case that the profoundly dysfunctional Greek state needs all the advice that it can get (and, for that matter, that lenders to Greece have rights too), but it’s equally easy to suspect that major political problems are on the way as Greece contemplates quite how much sovereignty it has lost. Under the circumstances, this is worth noting:

Greece’s creditors have insisted that a cross-party consensus would facilitate the implementation of the measures but the head of the main conservative opposition New Democracy, Antonis Samaras, has rebuffed a series of overtures by Papandreou. In an interview with Sunday’s Kathimerini, Samaras said he would also vote against a second bailout hammered out in Brussels last month. “As long as I refuse to enter a consensus on an erroneous policy, the door is open for a renegotiation,” Samaras said.

The ND leader added that the latest Brussels pact had allowed bond holders to get off lightly, noting that Greece had been saddled with the status of “selective default in exchange for a very small haircut.”

Ominous words: There may well be a moment when Greece decides that it has less to lose from a ‘broad’ default than its creditors. And if it does . . .

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