Greece votes today… the banks brace themselves

Contingency plans are in the offing for a worst-case scenario now dubbed 'Grexit' - the Greeks' exit from the eurozone - if the trickle of withdrawals from Greek deposit accounts is augmented and spills over into the eurozone.

As one authoritative economic consultant says, there is no reason why deposit holders fearing the return to the Greek drachma, the old currency, would not go first to Cyprus or Italy to withdraw their savings in euros before say, effecting withdrawals from Greece.

But as a senior Maltese banking source confirms, contingency plans for Greek withdrawals from their deposit accounts to extract the liquidity of European banks' are in place.

Since there is no formal mechanism for an EU member state to exit from the euro, save for exiting the EU in its entirety, talk of Greece returning to the drachma carries some harrowing consequences for the country. Anything between €3 billion and €7 billion has already been withdrawn from Greek banks, but if the Greeks do exit the eurozone incomes and property prices would be halved and bank lending rates escalate to 37%: a horrific scenario if ever there was one.

"Commercial banks are aware of the possibility of massive withdrawals from other European banks outside Greece - euro currency withdrawals - to pre-empt the return to the drachma. Obviously, the concern is the strain on banks' liquidity," the banking source told MaltaToday.

"There is no reason to doubt such contingency plans are in place," another independent economist told MaltaToday. "Why Greeks would choose Malta instead of Cyprus, or Italy beats me..."

Much of this extreme scenario will depend on how Greece votes today, but even then, the election of a radical left coalition led by the charismatic Alexis Tsipras of Syriza is expected to be tempered by other politicians and good sense.

In this general election, the second in six weeks, the usual options would be the centre-right New Democracy or centre-left Pasok (PanHellenic Socalist Movement). But both parties opt for more austerity measures to enable Greece contain its debt and cut its expenditure.

That is why Greeks are more likely to go for Syriza, which in the last election came second. With 22% support according to recent polls, it is likely that Syriza's ambitions to nationalise the economy and tear up the EU-IMF bailout terms will be somewhat tempered by a necessary coalition with Pasok, currently enjoying 13% support.

Tsipras himself said the party still wants to keep the euro, so expect more talks with the European Commission over the terms and conditions of the bailout programme if Greece goes left.