It is being reported by the Wall Street Journal, CNBC etc, that the money held by individuals and small businesses in Greece is starting to haemorrhage from Greek Banks. This is both hardly a surprise, indeed it is a very rational act by sensible people, and far from being an act of the panicked moment.
It’s been happening slowly for a while. Greek bank holdings of your average person’s money have fallen by a third since 2010, to 165 billion Euros, which is 70 billion Euros down since the crash. On Monday 700 million Euros (about $898 million) was withdrawn. The withdrawals continue.
Why? If the election on 17th June means Greece is to come out of the Euro and default, any new Government will impose an instant “Bank Holiday” freezing all accounts. The savings of your average Demetrius in the street would be instantly trapped in the bank so he could not get his hands on it before being his hard earned cash is immediately converted from useful Euros, to New Drachmas by the Government. Then the ordinary man’s life savings will promptly be devalued by, oh say, 40% to make the country competitive. People will be beggared.
So, wise Greeks are prudently shifting significant chunks of their savings to banks elsewhere, like say Germany or Switzerland. At first it was your upper middle class doing this, the Doctors and professionals who it is claimed didn’t pay their taxes anyway, as well as the more financially astute. Now it’s the turn of pensioners and the ordinary guy in the Taverna to shunt money out of Greek Banks. Greeks are voting with their feet and sticking the valuable Euros under the bed where the government and the Germans cannot get them. Just like Granny did.
Clever, more savvy Greeks may choose to max out every credit card they hold for cash and hold on, to see what happens.
So far it’s rather civilised, more a gentle stroll out of the Bank than a run. Will that continue?
All of which takes money out of the banking system, meaning the Banks in turn cannot make money available to businesses or each other and indeed this could unbalance some weaker banks terminally, precipitating the very collapse everyone hopes will never come.
Copyright David Macadam 2012