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Greece’s beleaguered banking system has taken a fresh hit from the country’s shaky bailout talks this year, registering its worst deposit outflows since the height of its debt crisis in the summer of 2015.
Latest figures from the European Central Bank showed households and businesses pulled €1.1bn from the country’s lenders last month, moderating from the €1.7bn withdrawn at the start of the year but marking the worst two-monthly outflow since the country was bought to the brink of a eurozone exit nearly two years ago.
Cash has begun leaking out of the banking system amid fresh delays in Athens’ bailout talks with its creditors in the EU and International Monetary Fund. Greece is still waiting on the approval of its second bailout review to unlock around €6bn in rescue cash the government needs to pay off its bills and avoid default this summer.
But officials in the EU and IMF have been at loggerheads over the budget targets, debt relief and reform measures baked into the three-year bailout worth €86bn agreed in the summer of 2015. The IMF is demanding Europe ease up on its budget deficit targets for the country after the end of the rescue programme in 2018, while also pushing for bolder tax hikes and pension cuts from the Syriza government.
Without these reassurances, the Fund could stay on the sidelines of the rescue programme – withholding its financial support. Its full involvement had been a key plank in approving Greece’s bailout deal through the German, Dutch and Finnish parliaments nearly two years ago.
The uncertainty has already begun to hit the economy which fell back into reverse in the fourth quarter – contracting by 1.2 per cent.
Greek banks – which were forced to impose capital controls in 2015 – are particularly exposed to weak economic growth which heaps further pressure on the financial systems’ bad loans and has seen deposit levels plummet since its first bailout in 2010 (see chart below).
Banking sector reform is also a major part of demands from creditors, who have asked for revamped governance among the country’s main lenders.
Amid the standoff, the Bank of Greece has asked to raise the ceiling on emergency funds its receives from the European Central Bank for its domestic lenders by €400m – the first time it has put in such a request since the country signed its third bailout in July 2015.
The move reflected “developments in the liquidity situation of Greek banks, taking into account private sector deposits flows”, said the central bank.
On Monday, a spokesman for the EU Commission said “significant progress was made on key issues” after talks between Athens and its bailout officials in Brussels last week.
Finance ministers will gather to discuss progress on the deal at their next Eurogroup meeting on April 7, where officials are optimistic of bridging the differences between the IMF and European creditors.
“Ideally, we should be in a position to present a staff level agreement [in April]” said the spokesman.