Former Greek Prime Minister Lucas Papademos (left) and President Carolos Papoulias
In a letter to President Carolos Papoulias the former Greek Prime Minister Lucas Papademos emphasized the danger of the state being unable to pay salaries and pensions, and also of the danger that banks will collapse due to the expiration of deposits.
This is the same letter, which Carolos Papoulias also gave to all political leaders during the exploratory mandate for forming a government, and which was published in the Sunday issue of To Vima newspaper.
As the newspaper points out, according to Papademos, Greece is approaching the point of no return, where the Greek state will not have the necessary resources to pay salaries and pensions, and banks will have exhausted the limit for loans from the European system.
This happens while the country remains in economic and political uncertainty and internationally the ability of Greece to remain in the Eurozone is being disputed.
Predictions on all issues
In particular Papademos’ letter, which caused political tension, states the following:
Α. Available resources to the Greek State
1. According to estimates of the "General Accounting" Directorate (from May 8, 2012), the main forecast for the development of revenue (tax revenue and crediting) and costs (expenditures and debt service) lead to the conclusion that the available funds in the Ministry of Finance will gradually decrease from nearly 3.8 billion Euros on May 11 to nearly 700 million Euros on June 18 and from June 20 they will reach negative levels of around 1 billion Euros.
The projected shortage of cash in the last ten days of June can be temporarily covered by withdrawing funds from the Fund for financial stability Reserve, amounting to some 3 billion Euros.
2. This general forecast, however, has already changed for the worse, because on May 10 the granted tranche by the European Union was 4.2 billion Euros, rather than the originally anticipated amount of 5.3 billion Euros.
Moreover, the actual tax revenues come out to be lower than expected and costs are higher than the ones anticipated in the baseline scenario.
Therefore, it is believed that the Greek State will face many difficulties in meeting its overall costs from mid-June and onwards.
3. Economic and political uncertainty and a new election period will have negative consequences on the development of revenues, while cost containment becomes more difficult.
Consequently, the problem with the funds available to the Treasury may become reality at the beginning of June. These events will make it even more difficult to achieve the fiscal targets in the upcoming months.
4. From late June and onwards the ability of the government to finance its obligations will depend entirely on the approval of subsequent loan instalments from the European Financial Stability Fund (EFSF) and the International Monetary Fund.
Approval of disbursements will be based on the Troika’s evaluation of implementation of the economic programme.
B. Bank deposits and liquidity of the economy
5. As already known, the liquidity of the banking system has shrunk significantly over the past two years due to:
(a) the isolation of Greek banks on international markets and
(b) the large withdraws of deposits.
In particular, from the end of 2009 until March 2012, deposits decreased by 73.5 billion Euros.
This fact, combined with the isolation from international markets has led Greek banks to seek financial support from the European Central Bank and the European system and the total amount of their loans amounts to 122 billion Euros.
6. A further reduction in deposits was noticed from the beginning of May. They decreased by about 2 billion Euros from May 1 to May 9.
If withdrawal of deposits continues at the same pace because of economic uncertainty and the anxiety of a possible exit of Greece from the Eurozone, it is believed that after three to four weeks Greek banks will have exhausted their crediting limit from the European system.
7.The continuous negative assessments of Greece and challenging of the country's ability to remain in the Eurozone by the media, financial analysts and international banks, together with any unforeseen event that may adversely affect the economic climate and expectations of citizens, carry risks of dramatic increase of deposit withdrawals.
Such developments could have disastrous consequences on bank liquidity, economy financing and therefore on the entire economic activity of the country.
8. In conclusion, the above findings reinforce the need to create conditions of stability and trust.
In statements for international media - first for “Wall Street Journal”, and then for CNBC, the former Greek Prime Minister reiterated all the dangers threatening the country due to increased fears abroad about how things will develop in Greece.
However, he expressed his confidence that Greece exiting the Eurozone "is unlikely to happen", emphasizing that it is a "scenario, not desired by all".