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27 May 2012

FT: Greece warned of public finances collapse


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Mr Papademos warned that conditions were deteriorating faster than expected, with cash flow likely to turn negative in early June, amid a sharp fall in tax revenues and a loosening of spending controls during two back-to-back election campaigns.


Greece’s public finances could collapse as early as next month, leaving salaries and pensions unpaid, unless a stable government emerges from the June 17 election, according to Lucas Papademos. 

Mounting anxiety that Greece is headed for further political instability and a possible exit from the euro has prompted many Greeks to postpone making tax payments, and has also accelerated outflows of deposits from local banks.

Athens bankers estimate that more than €3 billion of cash withdrawn since the May 6 election has been stashed in safe deposit boxes and under mattresses in case the country is forced to readopt the drachma.

George Zanias, the caretaker finance minister, may try to divert up to €3bn from the Hellenic Financial Stability Fund – set up by official lenders to help recapitalise struggling Greek banks – to provide temporary support for the budget, a ministry official said at the weekend.

But such a move could be opposed by the Fund’s board, which set aside the extra financing as a buffer in case of delays in implementing a €45 billion recapitalisation plan agreed in March with the EU and International Monetary Fund as part of Greece’s €174 billion bailout. The EU has held back €1 billion from its latest tranche of bailout money pending formation of a stable government in Athens.

Full article (FT subscription required)



© Financial Times


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