Greece’s banks have
lost a quarter of their value in two days as the dual threats of a bank run and
the loss of support from the European Central Bank threaten a liquidity
squeeze.
Up to €8bn worth of
deposits has been pulled out of Greek banks since November, according to
Moody’s, with more withdrawals likely amid fears that the life support from the
European Central Bank will be extinguished.
Syriza’s Alexis
Tsipras, who was sworn in as prime minister on Monday, on Tuesday appointed the
economist Yanis Varoufakis, a fellow fierce opponent of European-imposed
austerity, as Greece’s finance minister.
The move was seen as a
further sign that Greece is on a collision course with the EU over repaying
debt and maintaining its bail-out programme, which currently expires on
February 28. Mr Varoufakis, who studied at the University of Essex, has
described Greece’s austerity agreements as “fiscal waterboarding”.
Stock markets in
Greece tumbled on Tuesday amid further warnings that Syriza and its coalition
partners, the right-wing Independent Greek party, will struggle to come to an
agreement with the Troika of the ECB, International Monetary Fund and European
Union.
“Syriza’s position is
in direct opposition to the Troika and will make negotiations for renewing the
programme very challenging when the current agreement with the European
Commission expires on February 28,” said Alpona Banerji at Moody’s.
“The party’s election
campaign was based on ending the Troika programme, negotiating a debt write-off
and reversing some of the key spending reforms previously undertaken. Moreover,
Greece’s European partners are likely to resist any such reversals, as they
could also increase pressure for a similar unwinding of austerity measures, and
reduce prospects for structural reforms elsewhere in Europe.”
The Athens Stock
Exchange fell 3.7pc, although investors remain less concerned than at the peak
of the Greek crisis in mid-2012. However, the country’s banking sector plunged
to a record low amid the prospect that its lenders will be unable to deal with
a deposit flight.
Bank shares fell 13pc
on Monday, and another 10pc on Tuesday, meaning they have lost almost a quarter
since Sunday’s election.
The risk of a
full-blown crisis should a political showdown mean Greece defaulting has seen
depositors withdraw billions from Greek banks, echoing the summer of 2012 when
the Greek central bank was forced to provide up to €124bn of emergency
liquidity assistance (ELA) – loans to keep the banks running.
Greece’s bail-out
agreements with the Troika have given its banks access to the ECB’s funding
scheme, unlocking billions in cheap liquidity.
However, banks are
running out of collateral to use against these loans, and will be ineligible
for such support if Greece fails to extend its bail-out programme next month.
The ECB pulling the
plug would come at the worst possible time for Greece’s banks, whose use of the
funding scheme is expected to have risen to a two-year high.
Moody’s predicts that
ECB funding will rise from €56bn to €65bn this month, with bank deposits down
5pc in the last two months to around €156bn.
With banks potentially
losing support from the ECB, they are likely to turn to Greece’s central bank
for emergency assistance; several have already applied to do so. The banks have
not been forced to use ELA - which is more expensive than ECB loans - since May
last year.
Nondas Nicolaides,
vice president and senior credit officer at Moody’s, added that many borrowers
close to default will simply refuse to restructure debts in the coming months
to see if the new government will force banks to write them off.
“We believe borrowers
will be inclined to halt negotiations with banks, in the hope that the new
government will promote borrower-friendly measures, including debt forgiveness,
a topic that has been widely debated among political parties in recent months,”
he said.
