Euro fears rise as Greeks withdraw money from banks

Like him, many Greeks are either transferring their savings abroad or taking them out of the banks, driven by fear that the country may have to leave the eurozone.

Anti-austerity parties that won the 6 May elections failed to form a government and new elections are now due on 17 June, with polls indicating that the pro-bail-out parties will lose even more seats in the new parliament.

Minutes of the meetings between President Karolos Papoulias and political leaders earlier this week show that the run on the banks has increased in recent days. The head of the Greek central bank, George Provovopoulos told the president that at least €700 million were withdrawn on Monday (14 May) alone.

"Mr Provopoulos told me there was no panic, but there was great fear that could develop into a panic," the minutes quoted the president as saying.

A similar amount of €700-800 million was withdrawn by Tuesday night, central bank sources told Reuters. In Athens, several bankers voiced concern that over €5 billion have been taken out or transferred abroad since the 6 May elections.

Central bank statistics at the end of March spoke of €165 billion deposited in Greek banks. The eurozone bail-out fund (EFSF) already transferred €25 billion as part of the second bail-out package precisely for boosting the banks' coffers. A further €23 billion can be transferred to the same purpose, provided Greece sticks to the bail-out conditions.

"Even if withdrawals were to continue at the same pace, they should survive until elections," says ING senior economist Carsten Brzeski. But the wider consequences, especially on Spain, which is also struggling with 'bad banks', recession and high unemployment "may have to lead to a bail-out and more European Central Bank intervention," he told this website.

Spain's benchmark 10-year government bonds soared to a peak of 6.51 percent on Wednesday, a level considered too high for the state to afford over the longer term. At one stage, the difference between the interest rates demanded by investors for Spanish and German 10-year bonds shot past the 500 basis point level to hit its highest point since the euro was introduced in 1999.

The government in Madrid rushed through a banking sector reform last week, after having taken over Bankia, one of the major lenders. But Brzeski said the reforms were "too little, too late" and the contagion effect from Greece may force Spain to ask for EU money sooner than expected.