Greece's public finances could collapse as early as next month, leaving salaries and pensions unpaid unless a stable government emerges from the June 17 election, according to Lucas Papademos, the technocrat prime minister who left office after this month's inconclusive vote.
Mr Papademos warned that conditions were deteriorating faster than expected with cash flow likely to turn negative in early June amid a sharp fall in tax revenues and a loosening of spending controls during two back-to-back election campaigns.
Mounting anxiety that Greece is headed for further political instability and a possible exit from the euro has prompted many Greeks to postpone making tax payments, and has also accelerated outflows of deposits from local banks.
Athens bankers estimate that more than €3bn of cash withdrawn since the May 6 election has been stashed in safe-deposit boxes and under mattresses in case the country is forced to readopt the drachma.
That's terrifying news. The slow-motion bank runs in Greece are well underway, and people are simply putting off tax payments with no real government in power right now. There's no reason to believe June's elections will break the deadlock, either. None. The Greek Fire is now burning through the country's cash on hand reserves. It's not going to be able to pay employees within weeks. That's only going to increase the bank runs and delay more tax payments.
I don't see a way out of this now other than Yet Another Bailout. And this time, I think Germany will say "nein".
On the other hand, Spain is in real trouble too:
Why has this piece of bad news terrified global elites? In the first place because it demonstrates that in addition to huge costs in bailing out its banking sector the insolvent Spanish central government is going to get hit with massive bills from not only Catalonia but its other regional governments. It is going to have to go to the financial markets hat in hand to borrow more money than expected — this is going to drive interest rates up in Spain (and probably in Italy and Belgium) just at the time when Europe’s financial markets were trembling on the brink of yet another panic. And it means that Spain is likely to come to the EU much sooner than expected with a much bigger bailout request than anybody thought.
It's a race as to which country will need that bailout first. But Spain's day joining the rest of the PIIGS (Portugal, Ireland, Italy and Greece) in the Bailout Club is now a guarantee, folks.
It's getting scary. Real bad. And the Greek Fire is now picking up speed.