That was a dramatic acceleration of a depositor exodus that began more than two years ago, when Greece’s dire debt situation first became clear. Now, if the trend morphs into a full-scale bank run, Greece’s financial institutions could collapse, potentially imperiling savings that remain in the system. Even if Athens steps in to ensure that depositors get their money back, it will almost certainly be forced to do so using a drastically devalued drachma.
In a sense, what’s more surprising than the mass withdrawals is that many people continue to trust the system with their family finances.
Still, the threat hasn’t compelled Nikos Charakaidis and his wife, Magda Verouli, to withdraw their euros from the bank. It would be easy for them to do so: There’s an ATM less than a block from their video rental store in suburban Athens.
No thanks, they say.
Charakaidis and Verouli think it’s not fair to drain their accounts. They estimate they have under $13,000 in deposits, and they’re not touching it. For them, it’s a matter of principle.
“If all the people take the money out of the banks, we’re going to have a collapse,” Charakaidis said. “If everybody takes their money, the economy stops.”
Ever since Greece’s massive debt was revealed more than two years ago, deposits have dwindled. Wealthy Greeks have purchased real estate in places like London, some hoard euros at home, and others tap savings to pay bills.
Deposits by households and businesses declined by just under 30 percent from October 2009 through the end of March, according to Bank of Greece statistics. That $90 billion decline left Greek banks with $215 billion.
Then, almost $1 billion was withdrawn from Greek accounts in the days after the election, when the two main parties supporting Greece’s huge bailouts, funded by the IMF and other European countries, took a beating.
In voting against the austerity measures that accompany the rescue funds, Greeks re-launched a Europe-wide debate about whether the country can and should remain within the euro zone. Repercussions include contagion to other euro zone countries like Spain and Italy.
A new election is scheduled June 17 because leaders failed form a coalition government. Fitch Ratings agency underscored the risks of continued uncertainty Thursday when it downgraded Greece’s credit rating.
Recent polls have shown that the Radical Left Coalition (Syriza), which came in second place in the May 6 election, could pass the center-right New Democracy in the next election. Syriza vehemently opposes the bailout conditions. A new poll, however, shows increased support for New Democracy, likely enough to create a coalition with the Socialist Pasok party, Reuters reported.
Fitch said a Greek exit from the euro would be “probable” if winners of the June 17 election don’t honor the bailout conditions.
This prompts the question, are the banks safe?
For her part, Verouli acknowledges “we are afraid” of losing value if their euros become drachmas, but said keeping their savings in the bank is the right thing to do.
“It’s not for the government; its for fellow Greeks,” she said. “If we don’t help each other, we have problems. It’s a risk but we’ll not take any money to our home like most people.”
University of Piraeus finance professor Dimitris Malliaropulos, who also is an economic research adviser to Eurobank, said Greeks still have confidence in the banking system.
Greece has received half of a $65 billion bank recapitalization plan as part of the $170 billion bailout negotiated late last year. Those funds are scheduled to be disbursed to Greece’s largest banks next week.
“There is still a big buffer of liquidity,” he said.
Greek banks needed recapitalization after suffering losses of more than $38 billion — applied to the 2011 books — by accepting a 53 percent “haircut” on the value of Greek government bonds.
Malliaropulos said there’s an upside to leaving your money in Greek banks.
“Greek banks pay higher interest rates, which is compensating for this kind of risk,” he said. “Five to 6 percent interest rates for time deposits compared to around 1 percent in other European countries.”
The $90 billion drop in deposits since October 2009 doesn’t constitute a bank run, he added.
“It’s not a bank run. The system is bleeding. It loses deposits gradually, every time there is talk of exiting the euro. Northern Rock in the UK was a bank run, with people standing in queues to withdraw their money.”
Meanwhile, government revenues likely will take a hit before the election, according to an analysis by Bank of America. Because of the political uncertainty, Greeks will be less likely to pay tax bills, so government revenues “will be halved” for June and July, it said.
At their video rental store in the Galatsi neighborhood, Charakaidis and Verouli said they’re fortunate because they own the building. At least they don’t have to pay rent.
Nearby, professional photographer Georgia Diakaki laughs off a question about money in the bank. She has none. She said she’s depressed and struggling to keep her shop open.
“I am desperate. I don’t care,” she said.