Recent figures from Greece show an accelerating withdrawal of money from domestic banks; deposits are down 25 percent since September 2009, climaxing in a massive move in September and October as the prospects for a Greek exit from the euro increased. As the Guardian notes, the withdrawals have several causes; in some cases, the recession is forcing Greeks to liquidate their savings. But much of the money movement reflects well founded fears that a Greek withdrawal from the euro would mean that deposits in Greek banks would be forcibly converted from euros into drachmas — and nobody wants that. As the Guardian tells us:
The weekly Proto Thema publication reckons that some 500,000 Greeks have moved money abroad, with a record 1.2m bank transfers being made over the last 18 months.An estimated €40bn, amounting to 17% of the country’s gross domestic product, is believed to have been withdrawn from the banking system over the past year.Foreign banks with branches in Athens were facilitating the cash flight, the newspaper claimed, by encouraging Greek depositors to set up bank accounts abroad. The Swiss banking groups UBS and Credit Suisse had made it much easier for investors to open accounts in Geneva and Zurich by simplifying procedures.
The wonder is that anybody is keeping any money at all in Greek banks. There is no good reason why an individual or company would want to put their assets in one of the dodgiest countries around where the banks are under threat, the government is desperate and an unstoppable financial crisis could break out at any moment.Unfortunately, rational behavior by individual Greek citizens could wreck what is left of the economy. A banking crisis in Greece would destroy what is left of the country’s finances. Less dramatically, as banks lose deposits they have to cut back on their lending. Since no sane foreign banks are extending new loans in Greece, domestic banks are the only source of funds for most Greek borrowers. As credit dries up, the economic downturn will get worse.Savers in Portugal, Italy, Ireland, Belgium, Spain and even France also have reasons to think about where they are parking their money. Those countries may or may not experience meltdowns, but why take the risk? In the age of the internet, the credit card and the ATM, you don’t really need to bank local in Europe — so why should you?Recently I wrote about a “bank walk” as European and other investors move their assets into safer countries and safer banks. This is beginning to look a little more like a “bank jog”; banks runs, when they come, come suddenly. The conditions are increasingly favorable for bank runs in Europe; this financial crisis could turn very ugly very fast.