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, the technocrat prime minister who left office after this month’s inconclusive vote.
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.
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Athens bankers estimate that more than €3bn of cash withdrawn since the May 6 election has been stashed in safe-deposit boxes and under mattresses in case the country is forced to readopt the drachma.
The finance ministry has halted repayment of value-added tax to Greek exporters, and slashed public investment spending by more than 20 per cent in the first four months.
Transfers to the health ministry to pay debts owed to hospital suppliers and pharmacies have been temporarily suspended, obliging patients to pay the full cost of prescription drugs for the first time.
The struggling state electricity utility PPC has received a €250m special payment from the budget to help cover a widening deficit. The utility has been hit by a sharp rise in non-payments of household electricity bills after the finance ministry imposed an extra “solidarity tax” last year that was added to the bills.
Understatement of the Month
“The situation is getting out of hand,” said a private sector economist. Really? It seems to me things got out of hand long ago.
Swiss Eye Capital Controls as Money Pours into Switzerland
While some stuff money in mattresses, others pour money into Swiss Francs. In response Swiss eye capital controls.
The Swiss National Bank is considering imposing capital controls on foreign deposits if Greece leaves the euro, as the franc comes under heavy demand from investors seeking a haven in Europe.
The Swiss franc has come under increasing pressure since the Greek elections at the start of the month. Currency traders have reported unusually high levels of franc buying in response to the problems in the eurozone, which has seen the euro slide to its lowest level in nearly two years.
“We’re preparing ourselves for turbulent times,” Mr Thomas Jordan [head of the Swiss central bank] said in an interview with SonntagsZeitung, a Swiss newspaper.
“The situation has become worse in the past few weeks and the outlook has become much more uncertain. We’re seeing a clear upward pressure on the franc,” he told the newspaper. “Investors are looking for a safe haven. For many, that includes the franc.”
I have said this before numerous times but it is worth repeating: If you have money in Greek, Spanish, or Portuguese banks, get it out now.