Despite a weekend bailout for Spain’s banking sector that was meant to reassure investors, markets continued to punish the southern eurozone.
Yields remained high on Spanish and Italian bonds as a Greek voters threatened to reject bailout conditions in the election set for Sunday, and Prime Minister Mariano Rajoy of Spain challenged central bankers in the region to buy bonds and help counter the crisis. Italy had its own problems as Germany warned Rome to stick to its austerity program.
Bloomberg reported Wednesday that the most recent Greek polls show that Syriza, the party in favor of ditching the bailout—but not the euro—gained 3.5% this week, bringing it very close in popularity to New Democracy, the leading party, which supports the bailout.
Alexis Tsipras, the head of Syriza, has called for abandonment of the austerity conditions of Greece’s second bailout, although he insists he will keep the country in the euro. That could prove to be a challenge, since Germany and other more prosperous nations in the joint currency bloc have said that funds will be cut off if Greece fails to honor its agreement.
Greeks themselves fear the consequences of the election. Although, according to a Monday Reuters report, there has been talk among eurozone financial officials of instituting controls on how much money can be moved, and where to, should Greece depart the currency. Cash is already flowing out of Greek banks. Bloomberg reported Wednesday that withdrawals are on the rise.
A banker who asked not to be identified told Bloomberg that the rate of daily withdrawals is now at the upper end of a 100 million euro ($125 million) to 500 million euro range this month. Another banker said that the outflow could have exceeded 700 million euros as of Tuesday. Greeks fear that, should the country leave the currency, their savings will be slashed in value; to that end they are trying to hold on to cash in the form of euros rather than having to convert to drachmas.
The flood of money away from Greek banks “could accelerate the sequence of events leading to the emergence of a new currency,” according to Thomas Costerg, an economist at Standard Chartered Bank in London who was quoted in the report. Still, he pointed out that “Greek banks can tap the abundant central bank funding, which can offset the pressure coming from deposit flight.”
Reuters reported that some of the withdrawn money is being used, according to retailers, to stock up on such commodities as pasta and canned goods, as worried Greeks fear harsh conditions in the event of a euro exit. The report also quoted an unidentified pollster as saying that poll reports were exaggerated; as the election draws near, the publishing of poll reports is not allowed. The pollster, identified only as reputable, was quoted saying, “This is nonsense. Our polls show the picture has not changed much since the last polls were published. Parties may be leaking these numbers on purpose to boost their standing.”