Up until yesterday the situation with the negotiations remained murky and nothing suggested that an agreement is possible at today’s Eurogroup session. On the contrary, everyone already spoke its failure.
Both the Greek and German Finance Ministers did not expect an agreement on Wednesday. The shared belief is that under these circumstances the agony and uncertainty will be extended that pressure on the banks will increase. On Wednesday alone almost 1 billion euros were withdrawn from the banks.
It is estimated that the Greek banking system cash reserves are a critical level and will continue to be so, as long as the negotiations carry on. Fortunately the European Central Bank offered another 1.1 billion euros to the Greek banking system, in order to address the outflow of deposits which is currently on the rise.
Frankfurt, however, is tightfisted in covering Greek needs, simply because it wants to maintain the pressure, so long as the negotiations do not conclude.
Senior banking sources noted that this critical situation cannot carry on for much longer. The same source clarified that no solution is expected at the Eurogroup. There is however some hope for an agreement at a Summit, which will not be announced over the weekend after all.
As it would seem, the discussion on Greece will take place at the Summit scheduled for the 24th and 25th of June.
The question is whether the Greek economy can withstand the increasing pressure on the banks. Deposits in Greek banks have steadily been withdrawn over the past few months. Since the start of the crisis, Greek banks are thought to have lost over 100 billion euros, with 30 billion euros being withdrawn in the past 5 months.
Currently the deposits amount to less than 130 billion euros, when the Emergency Liquidity Assistance provided by the European Central Bank is approaching 120 billion euros.
All of the aforementioned highlights the need for a solution as soon as possible. If the government does not secure an agreement with the creditors soon, then a credit event will occur and the Greek economy will collapse within, as the people lose their trust in the banking system.
Antonis Karakousis
