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Stock markets unsettled by Greek debt deal uncertainty and cash exodus Stock markets unsettled by Greek debt deal uncertainty and cash exodus
(about 4 hours later)
European shares fell on Friday after Greek bank deposits slumped to a decade-low, raising fears that the country is heading towards a disorderly exit from the eurozone. European shares fell on Friday after Greek bank deposits slumped to a decade low, raising fears that the country is heading towards a disorderly exit from the eurozone.
Following Thursday’s warning from Christine Lagarde, head of the International Monetary Fund, that Greece could potentially leave the euro, investors remained sceptical of a debt deal this weekend. Athens’ benchmark share index fell 0.2%, having been down almost 2%. The pan-European FTSEurofirst 300 index was down 0.3%, also slightly recovered from an earlier drop. Following a warning on Thursday from Christine Lagarde, head of the International Monetary Fund, that Greece could potentially leave the euro, investors remained sceptical of a debt deal this weekend. Athens’s benchmark share index fell 1.4%, having been down almost 2%. The pan-European FTSEurofirst 300 index was also down more than 1%.
Greek savers pulled €5.6bn (£4bn) out of their accounts against the backdrop of rising political uncertainty and fraught debt talks with Athens’ international creditors. The deteriorating state of Greece’s financial system was confirmed in new data showing that savers continue to pull their money out of the country’s banks. Separate figures confirmed the economy shrank in the opening months of this year, leaving Greece back in recession.
Against the backdrop of rising political uncertainty and fraught debt talks with Athens’s international creditors, Greeks took €5.6bn (£4bn) out of their accounts last month.
The European Central Bank (ECB) confirmed further deposit losses for Greek banks, where customers have withdrawn money to keep it at home or move overseas. Deposits at Greek banks fell to €139.4bn in April from €145bn in March, to stand at their lowest level since 2009, ECB data showed.The European Central Bank (ECB) confirmed further deposit losses for Greek banks, where customers have withdrawn money to keep it at home or move overseas. Deposits at Greek banks fell to €139.4bn in April from €145bn in March, to stand at their lowest level since 2009, ECB data showed.
Greek banks have been losing deposits since December, when the previous government called a general election after failing to elect a new president. The latest drop in deposits, a basic source of funding for banks, will intensify worries about the health of Greece’s financial system. The depletion will also raise expectations that Greece could impose capital controls, whereby limits are placed on withdrawals from banks. The latest depletion of funds continues a pattern which began in December, when the previous government called a general election after failing to elect a new president. The latest drop in deposits, a basic source of funding for banks, will intensify worries about the health of Greece’s financial system. The depletion will also raise expectations that Greece could impose capital controls, whereby limits are placed on withdrawals from banks.
The indebted country is scrambling to meet a 5 June deadline for a €305mpayment to the International Monetary Fund, just one of many creditor deadlines looming next month.The indebted country is scrambling to meet a 5 June deadline for a €305mpayment to the International Monetary Fund, just one of many creditor deadlines looming next month.
Daniel Sugarman at ETX Capital commented:Daniel Sugarman at ETX Capital commented:
European markets continued to feel the ongoing effects of the situation in Greece, with fresh fears that the country will be unable to make yet another repayment due to the IMF. The Greek government has still not made it clear how it intends to make the €1.6bn repayment, the first tranche of which falls due next Friday.European markets continued to feel the ongoing effects of the situation in Greece, with fresh fears that the country will be unable to make yet another repayment due to the IMF. The Greek government has still not made it clear how it intends to make the €1.6bn repayment, the first tranche of which falls due next Friday.
Greek ministers have admitted next week’s €305m payment cannot be met without securing a deal to release the €7.2bn of loans outstanding on the country’s current bailout programme.Greek ministers have admitted next week’s €305m payment cannot be met without securing a deal to release the €7.2bn of loans outstanding on the country’s current bailout programme.
Separate figures on Friday underlined the blow dealt to the Greek economy by the uncertainty around the country’s ability to meet its debt repayments and its position in the eurozone. Greece’s return to recession was confirmed with news that GDP fell 0.2% in the first quarter after a 0.4% drop in the final months of 2014. Separate figures on Friday underlined the blow dealt to the Greek economy by the uncertainty around the country’s ability to meet its debt repayments and its position in the eurozone. GDP fell 0.2% in the first quarter after a 0.4% drop in the final months of 2014.
The data from statistics body ELSAT confirmed an earlier GDP estimate and showed a sharp drop in business investment and falling exports and imports. The data from statistics body ELSTAT confirmed an earlier GDP estimate and showed a sharp drop in business investment and falling exports and imports.
GDP shrinks againGDP shrinks again
Talks between Greece and its creditors continue in Brussels on Friday, and will carry on into the weekend, to close the gap on labour market reform, pensions, VAT rates and Greece’s budget targets. Greece’s three creditors - the International Monetary Fund, the ECB and the European Union - are demanding reforms in exchange for releasing the €7.2bn in funds. Talks between Greece and its creditors will continue over the weekend, to close the gap on labour market reform, pensions, VAT rates and Greece’s budget targets. Greece’s three creditors – the International Monetary Fund, the ECB and the European Union – are demanding reforms in exchange for releasing the €7.2bn in funds.
Greece hopes for a deal by Sunday, but its lenders appear to remain sceptical. German finance minister Wolfgang Schäuble said Greece was only briefly discussed at a meeting of G7 finance ministers and central bank chiefs in Dresden on Friday. Greece hopes for a deal by Sunday, but its lenders appear to remain sceptical. German finance minister Wolfgang Schäuble yesterday poured cold water on Greek claims of a breakthrough in discussions.
Lagarde said a deal with Athens was unlikely to be reached over the next few days. In an interview with the Frankfurter Allgemeine Zeitung, she reportedly said: “A Greek exit is a possibility.” “The positive news from Athens is not fully reflected in the talks,” Schäuble told reporters after a G7 meeting of finance ministers and central bank chiefs in Dresden.
US treasury secretary Jack Lew used the meeting to renew his criticism of slow progress so far on solving Greece’s debt crisis.
“If you look from January until now, too much time has been spent unproductively,” he said.
Lew also warned about the wider repercussions for the global economy.
“There is great uncertainty in there at a time when the world needs greater stability and certainty,” Lew told reporters after the G7 meetings.
Lagarde said in an interview with German newspaper the Frankfurter Allgemeine Zeitung on Thursday that a deal with Athens was unlikely to be reached over the next few days. She reportedly said: “A Greek exit is a possibility.”
But French finance minister Michel Sapin on Friday sought to play down such worries and stressed officials were not considering the possibility of Greece leaving the euro zone.
“There is no Grexit scenario,” he told reporters at the G7 meetings.