December 5, 2011

Greeks "emptying bank accounts"

It has been a long-running attribute of the austerity program that Greek banks were being emptied of deposits. Some of the money was being withdrawn to get it out of the country because of not only the fear of default of Greek financial institutions, but because of the increased tax penalty scrutiny. Money was moved to Crete and into other obvious locations (Switzerland, the United States) with an eye toward reaping a profit from the balance if or when the Greek drachma reappeared. Expecting a devaluation to follow quickly on the heels of a reborn drachma, euro money would automatically bring the holder an increase when converted into the lower valued drachma (of course, this only works if the euro stays around long enough to see a reborn drachma in the first place).

But in the last year, depositor flight has been an even shorter trip: from bank account into mattresses.

Der Spiegel article:

"Georgios Provopoulos, the governor of the central bank of Greece, is a man of statistics, and they speak a clear language. "In September and October, savings and time deposits fell by a further 13 to 14 billion euros. In the first 10 days of November the decline continued on a large scale," he recently told the economic affairs committee of the Greek parliament.

With disarming honesty, the central banker explained to the lawmakers why the Greek economy isn't managing to recover from a recession that has gone on for three years now: "Our banking system lacks the scope to finance growth."

He means that the outflow of funds from Greek bank accounts has been accelerating rapidly. At the start of 2010, savings and time deposits held by private households in Greece totalled €237.7 billion -- by the end of 2011, they had fallen by €49 billion. Since then, the decline has been gaining momentum."

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