Heading Into Weekend With No Deal, Greeks Rush to Withdraw Cash
This is what a bank run looks like.
Greek representatives and their creditors failed to reach a deal to forestall a default heading into the weekend—and the people of Greece are starting to show they believe a deal may not be in the cards at all.
Multiple news outlets are reporting that a "run" on the banks is now occurring. In practice, this means long lines at ATMs as people wait to withdraw large sums of cash. The people of Greece had been steadily moving money out of the country's financial institutions since last winter, but the flight accelerated in recent days as the prospects for an agreement between the ruling Syriza party and the international community grew dimmer. According to one estimate, a billion euros' worth of deposits exited Greek banks on Thursday alone.
The value of bitcoins has been edging up as well. On Tuesday, Reuters reported that the crypto-currency had surged "and was on track for its longest winning streak in 18 months, as concerns that Greece could tumble out of the euro drove speculators and Greek depositors into the decentralized digital currency." At the moment, one bitcoin is trading for $247.49 (in U.S. dollars).
If Greek negotiators can't persuade lenders to release the last few billion euros of its bailout, and soon, the country will find itself unable to make a debt repayment to the International Monetary Fund (IMF) due at the end of the month. This would force the country to introduce an alternative form of money—one with significantly lower purchasing power than the euro.
People don't want to be stuck holding a heavily devalued drachma, so they're rushing to pull cash out of their accounts now, while the country is still in the Eurozone. But due to the nature of modern finance, if too many people try to withdraw their deposits at once, banks can run out of money. To stave off that cataclysmic eventuality, the European Central Bank (ECB) announced today it would provide 1.8 billion euros in emergency liquidity assistance. That's just enough to get Greek banks through Monday, when talks are set to resume.
If there's still no deal, there are a couple of steps Greece will likely take: First would be to impose capital controls, a limit on the amount of money that can be withdrawn. Second would be to impose a bank holiday, essentially forcing the banks to shut down so that no one can make withdrawals at all.
But ultimately, Greece needs the ECB in order to stay in the currency union. If it defaults on its loans from the IMF, the rest of Europe will probably have had enough.
With 11 days until the final judgment, the Greek people are finally showing signs of panic. The only remaining question is whether that will be motivation enough for their leader, Alexis Tsipras, to finally bow down to the international community's demands.