If Greek Bank Run is Underway, It Means an Ugly End to EU Crisis
A Greek bank run may be underway and, if so, there's no need to schedule any more do-nothing summits. The EU financial crisis is resolving itself in a very fast, ugly manner.
So far, only the German newspaper Bild is reporting a run, and so far only in German, which means relying on Google to translate. The article opens with a description of long line of people outside of an Athens branch of the National Bank of Greece waiting for it to open for business. It then quotes the manager of an Athens bank branch (again, apologies for the translation):
More and more Greeks who still have some money to get it from the bank. In my office there are a total of 5,000 customers, 2,500 of which either have their money transferred abroad or hoard it at home. There are cases where people leave with €300,000 in the bank bag. If it continues, will soon be no more money.Without seeing other reports it is impossible to say how widespread a phenomenon this is. The most worrisome indicator is that government and banking officials are putting out statements to reassure Greece's citizens that deposits are safe. If a bank run isn't already underway that by itself could start one. These folks saying your money is safe is like the captain of the Titanic announcing a delivery of ice.
Another terrifying indicator: Greek 1-year bonds are currently trading at about 190 percent and going up today; 2-years are at 80 percent.
The Bild story is in keeping with what we already know about whatever remains of the Greek financial system. Since the start of this year Greeks have withdrawn $29 billion from the nation's banks. That's 10.2 percent of all deposits. In the past two years they have taken out $67 billion - or about 20 percent of deposits. What's astounding is that they haven't take out more. This is in addition to the nearly trillion dollars withdrawn by foreign investors between January 2010 and July of this year. So it wouldn't take much of a run to topple the system.
Instead of money what the banks have is a lot of really, really bad Greek government debt. So it is likely that someone soon will come into a bank and not be able to get his or her money out. That's when the feces hits.
Because the government is bankrupt it will be up to the European Central Bank to make good on these deposits. Unfortunately this is likely to trigger runs at the banks of nations A) heavily exposed to Greek debt; and/or B) already underwater themselves.
Thanks to the great gambling mechanism known as credit default swaps that means a lot of other institutions are suddenly going to have to make up losses with money they very likely don't have.
As I have said for some time, it is the man on the street - not economists, politicians or bankers - who is going to get the final word on this.
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