Greek 'Indignants' in front of the Greek parliament in Athens mark one year since the start of the movement on May 25, 2012.
AFP/Getty Images
Greek 'Indignants' in front of the Greek parliament in Athens mark one year since the start of the movement on May 25, 2012.

Story highlights

Papademos warns Greece's public finances could collapse as early as next month

Says conditions are deteriorating faster than expected as tax revenues fall, spending increases

Athens bankers estimate more than €3bn of cash has been withdrawn since May 6 election

IMF chief backtracks on her allegation that Greeks were "trying to escape tax"

Athens Financial Times —  

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Athens bankers estimate that more than €3bn of cash withdrawn since the May 6 election has been stashed in safe-deposit boxes and under mattresses in case the country is forced to readopt the drachma.

The looming cash crunch was revealed on Sunday in an eight-point document published by the Greek newspaper To Vima. A senior government official confirmed its accuracy, adding that Mr Papademos gave the document to President Karolos Papoulias, who discussed it with political party leaders as part of a failed attempt to form a national unity government.

“The state will face considerable difficulty covering its expenses in June,” the document said.

George Zanias, the caretaker finance minister, may try to divert up to €3bn from the Hellenic Financial Stability Fund – set up by official lenders to help recapitalise struggling Greek banks – to provide temporary support for the budget, a ministry official said at the weekend.

But such a move could be opposed by the Fund’s board, which set aside the extra financing as a buffer in case of delays in implementing a €45bn recapitalisation plan agreed in March with the EU and International Monetary Fund as part of Greece’s €174bn bailout.

The EU has held back €1bn from its latest tranche of bailout money pending formation of a stable government in Athens.

Another option being considered is to