Greece seeing deposits drain, report says

The Wall Street Journal reported Tuesday that the Greek president has warned that depositors withdrew €700 million ($896 million Cdn) from local banks Monday.

Country to hold new elections in June

Author Satyajit Das looks at what's ahead for the Greek financial crisis 5:57

The Wall Street Journal reported Tuesday that the Greek president has warned that depositors withdrew €700 million ($896 million Cdn) from local banks Monday.

The Journal said President Karolos Papoulias warned Greek political leaders that the situation facing Greece's lenders was very difficult.

The newspaper quoted what it said was a transcript of remarks by Papoulias to Greek political leaders stating that "the strength of banks is very weak right now."

Earlier Tuesday, Greece's political party leaders say the country will hold a new election in June after days of talks failed to resolve the country's political deadlock, party leaders said Tuesday.

"Unfortunately, the country is heading again toward elections," Evangelos Venizelos told journalists Tuesday at a meeting of party leaders convened by the Greek president in a last-ditch attempt to broker a deal.

"It is heading back to elections in a few days under very bad circumstances, because certain people coldly put their short-term party interests above the national interest."

The five Greek party leaders had been trying for nine days to work out a deal after inconclusive results from a national vote held May 6.

The euro was trading at $1.27 US Tuesday, a level it hasn't seen since mid-January. The Athens Stock Exchange plunged on the news, diving 4.86 per cent minutes after the announcement before recovering somewhat to close down 3.6 per cent, at a 22-year low.

Greek socialist leader Evangelos Venizelos says Greece is heading back to elections "under very bad circumstances." (Petros Giannakouris/Associated Press)

Investors worry that Greeks will elect a government that rejects the austerity measures that are a condition of the bailouts provided by the European Union and the International Monetary Fund.

That in turn would raise questions about Greece's ability to stay in the eurozone and, if it leaves, what would happen to banks exposed to Greek debt.

There is also the fear that Greeks, fearing a decline in their purchasing power if the country moves to a new, devalued currency, would try to get ahead of that by moving their euro savings out of the country, weakening the balance sheets of Greek banks.

"These upcoming elections will be a struggle between the left-leaning forces of nihilism in league with opportunistic populists," New Democracy leader Antonis Samaras said. "On the other side will be a European front, strong and determined."

Many Greeks seem resigned to the need for new polls, even though that will hold back the country's commitments to detail new harsh cutbacks next month while implementing pledged reforms.

"The solution is provided by democracy and democratic procedures," said Athens resident Yannis Ekaterinaris.

Another Athenian, Kostas Zaris, dismissed the idea floated by Papoulias for party leaders to agree on a cabinet of unelected technocrats.

"With a technocrat nothing can ever change," he said. "Technocrats only care about their interests and they cannot represent 50 percent or so of the Greek people."

Analyst Dimitris Mardas strongly disagreed, saying politicians should have done their utmost to strike a deal.

"As far as the economy is concerned, this is the worst thing that could have happened," he said. "It would have been preferable to have a government of technocrats that of course would have been allowed to actually govern."

Mardas, an associate professor of economics at Thessaloniki University, said the timing of the vote for mid-June could also harm Greece's key tourism industry.

"It's just what we didn't need," he said.

New urgency was added to efforts to resolve the crisis with the release of data showing Greece's economy slowed 6.2 per cent in the first quarter of 2012, compared with the first three months of 2011, according to the Greek Statistical Authority.

The conservative New Democracy party won the May 6 election, but only received 18.9 per cent of the vote as angry voters scattered to smaller parties.

Second-placed Syriza, which received 16.8 per cent in the election, is currently leading opinion polls.

With files from The Associated Press