Bank runs are the force that drove Greece to bend in the last standoff with the EU in February—and after a pause, depositors have begun to take their money out once again, the Financial Times reports:
Last week, almost €400m per day was being withdrawn, said senior bankers.
Without a quick deal with bailout lenders, Athens may not have enough cash to pay €1.7bn in wages and pensions at the end of the month and make a €450m repayment to the International Monetary Fund on April 9.
The biggest worry now is that a continued bank runs could force Greece into a sudden, unplanned exit from the euro. Huge chaos would likely follow—and the Greeks who were too slow or too stupid to get their money out of the banks in time would face massive losses as remaining bank deposits would likely be redenominated in a new drachma. Rule one in financial crises: don’t panic, because if nobody panics, nobody gets hurt. Rule two: panic first, because if people do panic, the ones who panic fast will suffer the least pain.
Greece has set itself trap. Its voters have elected a government that is committed to a confrontational course of action with its EU partners, a course that necessarily involves financial brinkmanship and repeated games of chicken. Those episodes necessarily create panics that lead Greeks to pull their money out of the financial system, fatally weakening the government’s position at just the moment it most needs to be able to bluff. This is a sign that the government program is at its heart incoherent. Attempting to follow the government’s program creates condition in which its program cannot be achieved. Out of understandable frustration and anger, the Greeks have elected a group of people who only know how to make things worse.
The best hope is that the sane wing of Syriza realizes what a dead end situation this is, and decides to stop the death spiral of bluster, bank run, and retreat. Unfortunately, with rumors swirling around Athens that Greek Finance Minister Yanis Varoufakis is considering resigning, it’s not clear that saner heads are set to prevail.