18 May 2012

G8 looms as ECB cuts loose Greek banks

6:10 am on 18 May 2012

Financial and political woes of Greece will be a priority at the G8 summit in the United States at the weekend, financial commentators say.

International concern about the euro zone is rising with Athens calling new elections, which look set to be won by parties opposing austerity measures.

Fears that Athens is on the brink of crashing out of the euro zone and igniting a renewed financial crisis have rattled global markets and alarmed world leaders.

Politicians at the G8 summit in Camp David, Maryland are expected to make Greece a priority when it meets for two days, starting on Saturday (NZ time).

The European Central Bank has stopped offering liquidity to some Greek banks it does not consider solvent.

European and international concern about the euro zone rose after Athens called new elections that look set to be won by parties opposing austerity measures.

Fears of a renewed financial crisis have sent stocks and commodities tumbling, and driven Europe's single currency towards its lowest levels this year.

World Bank President Robert Zoellick says if Greece left the euro zone, the ripple effects could be reminiscent of when Lehman Brothers investment bank collapsed in 2008, spreading panic on global financial markets.

He says the core question will be not Greece, but the situation in Spain and in Italy.

The issue is set to figure high on the agenda at a G8 summit later this week.

Greek left-wing leader Alexis Tsipras has accused the EU and German Chancellor Angela Merkel of playing poker with European people's lives by insisting on austerity measures.

Opinion polls are predicting that Mr Tsipras' Syriza bloc, which wants to renegotiate Greece's international bailout, will come first in new elections called for 17 June.

Cabinet ministers in Greece's caretaker government are expected to be sworn overnight as the earlier election left no party able to form a government, and deep uncertainty about Greece's ability to continue to meet the terms of its bailout package.

Greeks have pulled hundreds of millions of euros out of the banking system amid fears that the country will not be able to stay in the European Union's single currency.

Mr Tsipras wants to end government spending cuts, but also wants to stay in the European Union and says that if the "disease of austerity destroys Greece, it will spread to the rest of Europe".

European leaders and the IMF are warning that Greece must decide whether it is willing to accept the terms of the bailout to stay in the monetary union.

International Monetary Fund managing director Christine Lagarde said political leaders in Greece need to show the resolve to stay in the euro zone, which will require Athens to stick to the terms of its rescue package.

Euro zone exit "would be extremely expensive and hard, and not just for Greece," Ms Lagarde said.

At least €700 million was withdrawn from Greek banks in the week to Monday, Greek president Karolos Papoulias said.

The BBC reports there are not yet signs of a run on banks.

A senior judge has been appointed to head an interim government in Greece until the June ballot.