According to local media, the state has enough cash to pay salaries and pensions until late June. Greece’s European peers have threatened to cut off further loans if promised reforms stall
ATHENS: Greek political party leaders emerged late on Sunday from emergency cabinet talks with no breakthrough in sight, raising the prospect of new elections that could scupper reforms and force the country out of the eurozone.
President Carolos Papoulias initially met for 90 minutes with the heads of the three parties that topped last Sunday’s inconclusive election — conservative New Democracy, socialist Pasok, and radical left Syriza, before holding discussions with smaller parties.
But after the full day of last-ditch meetings, the small Democratic Left party, viewed as the most likely candidate for a coalition government with New Democracy and Pasok, said no government had emerged from Sunday’s discussions.
Talks will reopen on Monday, said state TV, as Greece grapples with mounting threats of a loan freeze should Athens falter on promised structural reforms.
If a cabinet cannot be formed by Thursday, when parliament convenes, new elections will have to be called in June.
Some of the leaders said Papoulias had produced a letter from outgoing Prime Minister Lucas Papademos on the state of the Greek economy, whose contents he declined to divulge outside the meeting.
“The president told me that sadly, until this point there has been no potential to form a unity government,” said Fotis Kouvelis, whose Democratic Left party was seen as the most likely candidate for a coalition government between the mainstream conservative and socialist parties.
His party wants any coalition government to “immediately” cancel legislation that slashed the minimum wage and facilitated layoffs, and start to “disengage” Greece from the unpopular EU-IMF rescue package.
Another key party, Syriza, which wants to tear up an agreement signed by Greece, the EU and the IMF in 2010 to save Athens from bankruptcy, has refused to cooperate altogether. But Syriza, Democratic Left, New Democracy and Pasok will meet Papoulis on Monday for another push at doing a deal.
A new poll published hours before the meetings showed that Greeks were now desperate for a coalition government that will safeguard eurozone membership. Seventy-two per cent of those who responded said parties should cooperate “at all costs,” according to a Kappa Research poll.
Five ways Greece could leave the Euro
If Greece cannot form a government – and the majority of voters backed parties who are against abiding by the agreed bailout terms – political unrest will grow on the streets and its neighbours will get increasingly nervous. A second round of elections in mid-June could produce an even larger anti-austerity vote.
No more money
So what happens if Greece remains without a government? The European Union, IMF and European Central Bank would probably turn off the taps and bailout money would stop flowing to the highly indebted country. At the same time, Greek banks would probably be cut off from the liquidity provided by the ECB.
Bring back the Drachma
To counteract a run on its banks after a debt default, a new Greek government would have to freeze bank accounts and introduce capital controls to prevent the country’s citizens from moving money abroad.
The government would also have to pass a currency law and start up the banknote-printing machines. It is not inconceivable that Greece might already be quietly printing new money. To minimise the likely chaos that would ensue, the Greek government would probably choose to reintroduce the drachma over a weekend.
The big exodus
The depreciation of the new currency will make imported goods more expensive and drive up inflation. Mass unemployment is likely, as is an exodus of young skilled workers. If tens of thousands of Greeks headed to the borders, they might even be closed.
Holders of Greek government debt would undoubtedly suffer, as they risk having their assets redenominated into a rapidly falling new Greek currency — as would holders of Greek corporate debt. Returning to a Greek national currency would create all sorts of legal problems with business and government contracts. Greek companies forced still to make payments in euros will see costs and interest payments on euro loans double. And UBS says: “The costs of breakup go way beyond the economic. To quote Shakespeare, in the event of a fragmentation of the euro, economists will have little to do but ‘cry havoc, and let slip the dogs of war’.”