Greece on the brink ahead of crisis talks

 
Chris Papadopoullos
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Eurozone heads of state and finance ministers will meet today to try and keep Greece from going bankrupt amid protests in Athens
Greece faces bankruptcy and capital controls within days if Eurozone finance ministers fail to strike a bailout deal at an emergency meeting in Brussels today, the chairwoman of Greece’s largest bank has warned.

Louka Katseli, chair of the National Bank of Greece, told City A.M. that without a deal Athens risked a technical default before the end of June.

Analysts have assumed the hard deadline was 30 June, when Greece is due to make a bundled €1.6bn loan repayment to the IMF.

Greek officials flew into Brussels last night ahead of a frantic period of horse-trading between Greece and its lenders to try and unlock an emergency bailout fund for the country.

“If an agreement is not reached, there is a risk this would mean the Greek state is considered to be in default, and this might come earlier than the end of the June,” Katseli warned.

“If the Greek state is in default then the Greek banking system is in default – this would be uncharted waters, it has never happened before.”

The warning comes just days after a failed set of talks in Luxembourg, which saw Greek finance minister Yanis Varoufakis hit out at his Eurozone peers for reiterating their position that Greece was not putting forward serious reform proposals.

Technocrats from Greece and Brussels worked through the weekend to try to reach as much agreement as possible before today’s meetings of finance ministers and heads of state. But capital controls are expected within days if no deal is hammered out today. Analysts from JP Morgan estimate around €6bn (£4.3bn) left Greek banks last week.

“This acceleration in the pace of deposit outflows is raising the chance that the Greek government will be forced to impose restrictions on the withdrawal of deposits if no deal is reached at the Eurozone summit,” the analysts said. Households and firms had €165bn of deposits in Greek banks in November. This had fallen to €134bn by April, according to the country’s central bank. The JP Morgan analysts said the current level is nearer €120bn.

Capital controls would involve restricting withdrawals from cash machines and transactions abroad. To avoid them, Greek banks are currently borrowing extra cash from the country’s central bank but the amount it is allowed to lend to them is capped by the European Central Bank (ECB).

The ECB lifts the cap on request, but only if Greece’s banks remain solvent.

But because the banks have lent to the government they could become insolvent if Greece defaults. For this reason, the ECB has said it will continue to increase the cap on lending only if a deal is in sight.

One source close to negotiations said Greece would head to Brussels with proposals for a primary surplus target of 0.5 per cent for 2015. The primary surplus is tax revenue minus state spending, excluding interest payments on debt. Creditors initially wanted it to be 4.5 per cent of GDP this year and the issue has been a persistent source of disagreement since negotiations began in February.

Reports in Greek media suggest the Greeks may also be prepared to ease up on wage and pension cuts, which Greece has taken a hard line against.

Katseli believes both sides hold some responsibility for the current impasse, and said both would have benefitted if an intermediary had been appointed to coordinate the discussions. But she added: “I think sanity will prevail on both sides.”

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