- Greek voters urged by European leaders to reject Left-wing parties threatening to rip up the country’s bailout deal
- Today’s vote has been dubbed “the financial equivalent of the Cuban missile crisis”
- Greek withdrawal from Eurozone would create social and political instability, warns German Chancellor Angela Merkel
By Nick Pisa
PUBLISHED: 19:07 EST, 16 June 2012 | UPDATED: 19:25 EST, 16 June 2012
On the eve of today’s knife-edge vote, dubbed ‘the financial equivalent of the Cuban missile crisis’, German Chancellor Angela Merkel said the punishing terms of Greece’s £108 billion bailout package were not negotiable.
Her intervention came amid growing fears that Greece’s Left-wing Syriza group, which has promised to tear up the deal, could win the vote or at least deny pro-austerity parties overall control, causing a run on eurozone banks.
Left versus right: Syriza leader Alexis Tsipras, left, says he will tear up Greece’s bailout deal if he beats rival Antonis Samaras, right, in today’s election
A Greek withdrawal from the single currency would unbalance the social and political stability of Europe and the effects would be felt in Britain because the eurozone is a major trading partner.
It could also lead to a surge in illegal migration as people flee soaring inflation.
But while damaging, the effects on the UK would be softened by contingency planning that has been under way in the Treasury and the City for more than a year.
Most banks and major financial institutions have ‘priced in’ a Greek exit by writing down investments linked to the country and building up their cash buffers.
The deepening crisis will dominate this week’s G20 meeting of world leaders in Mexico, to which David Cameron will fly just hours after voting closes in Greece tonight.
Robert Zoellick, the outgoing head of the World Bank, is expected to warn leaders at the G20 to steel themselves for a Lehman-style global crisis, should the Greek electorate choose an anti-austerity government.
Mr Zoellick said: ‘Europe may be able to muddle through, but the risk is rising.’
He added: ‘There could be a Lehmans moment if things are not properly handled.’
Referring to the bankruptcy of Lehman Brothers in 2008, which triggered the deepest slump in the global economy since the 1930s, Mr Zoellick also warned developing countries to “prepare for the uncertainty coming out of the eurozone and the wider financial markets.”
Meanwhile, Mrs Merkel warned that countries such as Greece had to abide by their deals.
She said: ‘That’s why it’s so important that the Greek elections preferably lead to a result in which those that will form a future government say, “Yes, we will stick to the agreements.” ’
The German chancellor added that Athens will not be allowed to dodge its austerity agreement and ‘lead everyone else through the arena by the nose-ring’.
Jean-Claude Juncker, the head of the Euro-group that represents eurozone finance ministers, added: ‘If the radical left wins – which cannot be ruled out – the consequences for the currency union are unforeseeable.’
The election battle is between the anti-austerity Syriza party led by Alexis Tsipras, 37, and his opponent on the right, Antonis Samaras, 61.
Latest opinion polls gave New Democracy leader Mr Samaras, who wants to keep Greece in the euro, a slight lead but many commentators were describing the outcome as too close to call – while some even predicted a shock win for Syriza.
If Mr Tsipras does succeed, panic is guaranteed across the financial markets, as he has repeatedly said he will reject the terms of Greece’s bailout.
That will likely lead to the country pulling out of the single European currency and returning to the drachma, which Mr Samaras says will create an even greater economic meltdown and unleash contagion in other fragile European economies.
The dangers to Britain lie in the unpredictable knock-on effects which are hard to forecast, simply because a currency union on the scale of the euro has never ruptured before.
If panic spread across the region, and depositors in Spanish, Portuguese, Italian and even French banks rushed to move their euros into German banks, the effects would be immensely destabilising.
UK banks, heavily exposed to their French rivals, could be drained of vital credit and need emergency funds.
The markets would be spooked, businesses would pull back on investment and yet more job cuts in Britain’s financial sector would be likely.
Half of all UK exports go to the eurozone, so the chaos would hammer demand for our products and put weak businesses in peril.
Pension funds would also be hit by market volatility, with investors choosing low-income ‘safe haven’ assets.
Mr Tsipras has promised Greek voters he will restore growth by reversing the tough austerity measures imposed by the bailout package and which have hit many Greeks hard.
Engineering student Elias Panteleakos, 22, said yesterday he would vote for Mr Tsipras and added: ‘The worst scenario for Greece is for the government to continue with these austerity measures.
‘If we want to keep the eurozone alive then we must scrap austerity. I don’t think austerity is the solution, it is the problem.’
But telecommunications engineer Thodoris Thedorou, 37, said: ‘Greece must stay in the euro. We need to remain for economic stability.’
Yesterday the streets of Athens were calm but extra security has been drafted in. Groups of police, some in body armour, stood on street corners and outside shops in case of disturbances.
The main shopping street was busy but most customers were tourists, many forced to pay with credit cards because working cashpoints are rare.
Greeks are withdrawing between 500 million and 800 million euros a day and hiding them abroad.
Experts said stock markets could crash after the election and there could be a financial crisis similar to that which followed the 2008 downfall of Lehman Brothers in the US, forcing governments to intervene to prevent a banking collapse.
Harvard historian Niall Ferguson said: ‘If there is going to be a Lehman moment in the crisis it’s going to be next week. This is the financial equivalent of the Cuban missile crisis.’
An official projection of the result is expected after polls close at 9pm tonight, with definitive results announced early on Monday.
Voting in parliamentary elections is compulsory in Greece.
In Athens, my sister is helping to feed 80 people a week…never have I known such desperation
By VICKY PRYCE, Greek-born City Economist
When I was staying with my sister Lydia in Athens a month ago, she and her friends were busy putting leftover food in Tupperware boxes.
They then took them to families in the Voula suburb so they could feed their children.
A year ago, the organisation my sister helps was feeding 15 people a week – nearly all of them from homeless, immigrant families.
Now that number is 80, and half of them are Greeks. It is another sign of how desperate things have become there.
With just two per cent of Europe’s GDP, Greece is a tiny country. But right now, the Greeks are holding the future of the eurozone in their hands.
Today’s election – the second attempt to vote in a government to steer Greece towards reform and recovery – has been one of the most talked about events in the world.
In the UK, the Government has made huge quantities of extra liquidity available to the banking system, in case the markets panic should the results suggest Greece will exit the eurozone.
This would have severe repercussions for the European banking sector, and possibly lead to a credit crunch of the type seen after the collapse of Lehman Brothers in 2008.
The Spanish banking system is already on its knees, and there are fears of contagion in Italy and possibly France.
German banks are being downgraded due to the expectation that eurozone growth will suffer substantially from a Greek exit.
So that is why the Greek candidates are household names across Europe.
There’s the US-educated Samaras from the Right-wing New Democracy party; Venizelos, an ex-finance minister of the socialist Pasok party, which had to go cap in hand to the IMF and its European partners to get Greece’s first bailout; and Tsipras, the charismatic young leader of the new radical-Left Syriza party, who rose from nowhere and originally pledged to tear up the bailout agreement.
Tsipras now says he will just renegotiate it. He promises freedom from corrupt politicians, and growth and jobs for everyone.
Since the inconclusive election on May 6, the nation has been holding its breath to see what’ll happen next.
The political leaders have been interviewed in the wonderful sunshine, and discussions are calm and composed.
But storm clouds have been gathering – and may break tonight, when the exit polls are announced then the markets open in the Far East.
The apparent calm has been hiding the despair of many people who have lost their livelihoods and are suffering a fifth year of declining living standards.
Businesses are going bust at an alarming pace, unemployment is above 20 per cent – 50 per cent for 18 to 24-year-olds – and the suicide rate is soaring.
Basic services are paralysed, and medicines are scarce, with huge queues at pharmacies. Retail sales have plummeted, and many theatres and nightclubs are only opening at weekends.
People are driving a lot less, with petrol prices even higher than in the UK. Many parked cars have no plates – to avoid road-tax.
There is real poverty, and not just among the immigrant population that tends to use Greece as the point of entry into Europe.
I recently saw a notification that free food is being distributed at 103 locations in greater Athens, and 13 in nearby Piraeus.
The election should be seen as a play of two parts. The first part was in early May, when the Greeks voiced their objection to the two-party establishment – and the pain its policies had brought to the people – by simply voting against it.
The second part is today – when they’ll voice what they want instead.
During the interval, they started to sober up. Opinion polls showed they wanted a coalition or unity government to take the country through a transition period.
In that time, the political system would reinvent itself and deal with the national realities.
Those realities are sinking in fast. The reaction from Europe to the inconclusive result of the first election – with stock markets crashing, the euro weakening and talk of a possible forced Greek exit – have sobered the mood.
It’s also become increasingly clear that some of the Syriza’s pledges are absurd, such as financing the public sector from people’s bank-savings. It is also calling for Greece to remain in the euro – without austerity measures.
The majority of the Greeks do want to stay in the euro. They never saw their vote as ‘staying or exiting’ the single currency.
Last week, whatever money was left in Greek bank accounts and had not been moved abroad (a lot was invested in prime London properties), was being withdrawn in a panic and kept under mattresses – as the prospect of a return to the drachma and capital controls were discussed openly for the first time.
Arguably the Greeks should not have rushed to elections so soon after the previous prime minister, and former chief banker, Papademos, had negotiated the second bailout.
It would have been much better to have done what the Italians are doing. There, elections will not be held until next year, to allow for the measures Mario Monti is pushing through to be implemented.
In Greece there has been no effective government for months. And whatever happens today, the Greek fundamentals will not change overnight.
After joining the euro by fiddling its figures (in the full knowledge of its European partners), Greece did not invest in productive capacity, and lost competitiveness.
The public sector grew to vast proportions, with many workers being recruited as political favours.
Corruption became endemic, tax avoidance and evasion the norm and public spending span out of control.
So when the crisis hit, Greece had nothing to fall back on.
It is anyone’s guess what will happen today, as no official polls have been allowed for two weeks.
Unofficial polls by betting firms show New Democracy and Syriza are neck and neck.
My hunch is that the Right-wing New Democracy party, which led Greece through the period when a boom disguised the underlying problems, will win – just.
It would then receive an extra 50 seats, due to the peculiarities of the system, and form a coalition with the socialist Pasok.
Whatever happens, the new government will have to renegotiate the bailout agreement, as the targets given to them by the IMF are too stretching.
And Greece will probably stay in the euro, as the cost to Europe would be more than if it stayed.
Yes, there’ll be further defaults. But as long as Greece can demonstrate it is prepared to reform, the money will come in.
The alternative is too frightening. If Greece leaves, the markets will assume it is just the start, and other countries will follow. That would be the end of the ‘euro project’.
And Europe has realised that Greece’s problems are not unique, and that the fundamental flaws of a poorly thought-out project must be fixed – rather than expelling naughty members when they misbehave to frighten the others into submission.