Greek Prime Minister George Papandreou faces a confidence vote today, and there’s a lot of confusion over the outcome and the aftermath. One set of reports says that he will lose the confidence vote, and that he’s being urged to resign prior to it. Another set says that there’s a deal in place for Papandreou to resign after the confidence vote passes, and that a unity government will be established before snap elections within a month. This is what the opposition New Democracy party has been seeking.
We do know that there will not be a referendum, as Finance Minister Evangelos Venizelos confirmed. Venizelos got out of a hospital bed and off to Cannes to meet with French and German officials earlier in the week, and after that issued a statement that showed cracks in the unity among the PASOK party. Venizelos essentially scotched the referendum by himself. Too much democracy was not allowable. And if you think a new government will mean a new position on the austerity-for-bailout package, think again. France and Germany have shown their hand by bullying the Greeks, and whoever emerges to lead the country will meekly agree to whatever terms, rather than suffering Papandreou’s fate. The New Democracy leader, Antonis Samaras, said he would accept the bailout terms. So the “snap elections” will not offer much of a choice.
Then there’s this ominous report:
Meanwhile, there have been a new wave of withdrawals from Greek banks in recent days, according to a report by Greek news website ekathimerini Thursday night. The banking system could be endangered if more liquidity is removed.
A bank run is frankly expected, given all the instability and the ease of movement made through the adoption of the euro. Sarah Kliff discussed this element of the crisis with Daniel Gros of the Centre for European Policy Studies:
“If there’s a run on the Greek banks, how can they actually satisfy that?” he asks. “Greece doesn’t have any more collateral to give the European Central Bank. Then the question becomes, will the European Central Bank give them any more loans?”
Greece and the European Central Bank have had a bit of a bumpy relationship: as The New York Times reported earlier this year, Greek banks have felt “pressured” to stop relying on a central fund. In May, the European Central Bank stopped accepting Greek bonds as collateral for loans to Greek banks.
But the prospect of a Greek default poses a difficult decision for the ECB. If it says no more loans, that’s probably the end: the Greek banks default, and that sends a shock of instability through the euro zone. “Will it say yes one more time? It’s very tough,” says Gros.
Gros essentially says it’s too late to stop this outcome, especially with a conservative ECB. New leader Mario Draghi did lower interest rates yesterday, but dealing with bailouts of Greek banks may not be on the menu.