We are seeing true Greek tragedy

Greece's deputy prime minister has said his country will run out of money in six weeks unless it honours its bitterly-disputed EU bailout deal.

Speaking exclusively to The Sunday Telegraph, Theodoros Pangalos said he was "very much afraid of what is going to happen" after Greek voters rejected the deal in elections last Sunday. "The majority of the people voted for a very strange mental construction," he said. "We want to be in the EU and the euro, but we don't want to pay anything for the past."

The main beneficiary of the election, the hard-Left Syriza coalition, came a startling second on a promise to tear up the deal, which promises EU loans to keep the massively-indebted country afloat, but demands crippling spending cuts in return. Germany, the principal lender, has said it will stop payments if Greece breaks its promises on spending.

Pangalos warned: "There is a school of thought that says the Germans are bluffing, and that they need Greece and will never throw us out of the eurozone. But what will happen, which is almost certain, is they will not give us the money to pay our debts.

"We will be in wild bankruptcy, out-of-control bankruptcy. The state will not be able to pay salaries and pensions. This is not recognised by the citizens. We have got until June before we run out of money.

"We have been spending the future for half a century. What [the anti-bailout forces] are really asking from the EU is not just to pay our bills, but also to pay for the deficit which we are still creating.

"I'm sure the Germans don't want Greece to leave the euro. What I don't know is how much they're willing to pay. It depends on the German man on the street. Is he willing to pay his taxes to save Greece? I doubt it."

After each of the top three parties at the election failed to form a government, Greece's president, Karolos Papoulias, will today hold last-ditch talks to try to cobble together a national unity coalition. The alternative is a fresh election next month, which polls show Syriza would be likely to win.

Pangalos compared Syriza's charismatic leader, Alexis Tsipras, with Venezuela's Hugo Chavez. "Are the Germans going to pay for a guy that wants to imitate Chavez?" he said. "Except that Chavez has oil - and an army."

The deputy prime minister also warned that chaos could boost the neo-fascist Golden Dawn party, which won an unprecedented 7 per cent of the vote, and 21 seats, in Sunday's election. "You know how it happened in Germany," he said. "It started with the Jews, then the Communists, then everybody - it could happen here. This is the country, after the Soviet Union and Germany itself, with the biggest percentage of [Second World War] casualties in its population."

Pangalos's Pasok, the Greek Socialist Party, lost three quarters of its seats after voters blamed it for the bailout deal and the cuts, which have caused enormous hardship but failed significantly to reduce Greece's debt. The economy has shrunk by 8.5 per cent in the past year. More than a fifth of the population is out of work and youth unemployment is almost 54 per cent.

Pasok, together with the main conservative party, New Democracy, previously won up to four fifths of the vote. Last week, the two established pro-bailout parties were reduced to 32 per cent between them.

The streets are calmer since the election. But the casualties of the bailout are everywhere. On the pavements, drug addicts openly inject in the middle of the day. And what is striking about Athens beggars is how clean and well-groomed so many are: not stereotypical street-dwellers, but working and professional people deep down on their luck.

Yiannis Bournos, Syriza's European policy spokesman, told The Sunday Telegraph that Greece could afford to reject the bailout deal because European policymakers dared not risk Greece triggering a domino effect - and a potential depression - across Europe.

"Schaeuble [Germany's finance minister] is pretending to be the fearless cowboy on the radio, saying the euro is secure [against a Greek exit]. But there's no way they will kick us out," he said.

"If we left the euro, the financial markets would attack Italy. If you owe euros 3,000 to the bank and don't pay, they will kill you. If you owe euros 10?billion, they will do everything for you."

He criticised the deputy prime minister's remarks, saying: "Pangalos is in his own sphere. When reality does not agree with him, reality has a problem. It's unbelievable to see the same representatives of the banking interests and of neo-liberalism saying that nothing can change. It reminds me of religious fundamentalism. There have been so many changes in Europe in the last two weeks."

Bournos said that even if the EU cut off payments the Greek government could pay salaries and pensions from its tax revenues. The country would seek alternative sources of financing from China, Russia and the Middle East.

Left-wingers hope that the election of a socialist president in France, together with concerns expressed in Italy and Holland about the austerity package, will soften hearts in Berlin.

At least in public, however, German officials continued increasing the pressure yesterday (Saturday). "If Athens doesn't stand by its word, that is a democratic decision," said the Bundesbank chief, Jens Weidmann, in an interview with the Suddeutsche Zeitung newspaper. "But that means the basis for further financial aid falls away."

He insisted the consquences of Greece leaving the euro "would be more serious for Greece than the rest of the eurozone". It is still possible that everyone could pull back from the brink. The Germans could soften their demands - next month, Greece is supposed to be outlining further billions in cuts, something even pro-bailout politicians are starting to balk at. The Greek Left could change its simplistic stand.

But the euro's fundamental problems will remain. And it is equally possible that the EU will merely use the time to erect bigger financial walls around Greece, hoping to leave it to its fate.

Planning for a Greek exit, now seen as likely by many, has stepped up a gear. Vodafone, a major presence in the Greek telecoms market, said it now sends all cash earned in Greece to the UK "every evening". Andrew Witty, chief executive of Glaxo SmithKline, said no cash was left in Greece or "most European countries". Several other British multinationals have made similar statements.

Jonathan Tepper, an economist with Variant Perception, said a debt default and Greek euro exit would happen at moments' notice after weeks of denials by all concerned. "To avoid immediate runs on banks, it would be done in a 'surprise' announcement over a weekend when markets and banks are closed," he said. "If necessary, Monday and Tuesday would be declared bank holidays as well."

During this period, diplomats have been told, cash machines would be turned off and banks closed, while staff "redenominate" euro notes into a new drachma, probably by rubber-stamping them. Capital controls would be imposed to stop Greeks transferring money out of the country electronically and border checks would prevent them taking out unstamped euros in suitcases.

Tepper is one of a growing number of economists who believe that the so-called "Grexit" might be better than years of EU-mandated misery. "In the past century, 69 countries have exited currency areas with little downward volatility," he said. "The experience of emerging-market countries, such as Argentina, Russia and the 'Asian tigers,' shows that the pain of devaluation would be brief, and rapid growth and recovery would follow."

Greece, however, is not Russia, Argentina or the Far East, with massive mineral wealth and untapped human capital. And most economists think a new, free-floating drachma would crash by up to 50 per cent against the euro and other currencies, halving the value of savings and spelling catastrophe for those on fixed incomes, such as pensioners.

EU diplomats in Athens have been warned to expect substantial disorder during this period, which would, said one, be "a dream moment for Golden Dawn".

The Sunday Telegraph yesterday joined the neo-fascists on "patrol" - their word - around Attiki, a poor, inner-city Athens neighbourhood which Golden Dawn says it has "cleaned up".

"This square used to be occupied," said the patrol leader, Nassos Rendekakos. "Full of illegal immigrants. We took it back. We just emptied the square of everyone: Greeks, foreigners, whatever."

But what if they refused to leave? "There's a good way and a bad way," said Rendekakos. "We know both ways."

They weren't in their black T-shirts yesterday, but they were still easy to spot. Their hair was shaved at the sides, they wore near-identical sunglasses, plus biker jackets and gloves, though the day was warm. Certainly the immigrants - not that there are many on these streets - knew who they were, and crossed the road or stepped quietly into doorways as they passed.

They weren't Nazis, they insisted, just nationalists. "It's not Hitler we like," said Rendekakos. "It's the way he used to make the best for his country. Hitler took a country with so much debt, unemployment, just before the edge, as we are here - and he managed to make that country great."

For Golden Dawn, there are signs of what might be termed buyers' remorse. We found a number of people who voted for them, but claimed they now regretted it, and the party's score in the latest polls is down.

Many other residents, however, were genuinely grateful to the fascists. "Six months ago, no-one could walk here," said Christos Yiannis, drinking coffee in Attiki's main square. "Last summer, we didn't come out like this at all. The police did nothing. Golden Dawn cleaned up the squares and made them human for people to enjoy, because the state is absent. The state has collapsed."

As two little girls rode pink tricycles round our table, and the old men sat reading their newspapers in the sun, it was tempting to believe there are easy answers to tough problems - and there are none tougher than the mess Greece now finds itself in.