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Greek cash withdrawals raise fear of run on banks

A leftist leader's call to nationalize banks has unnerved middle-class Greeks, whose withdrawals are fueling a drain on deposits of about $1 billion a day from an already threatened financial system.

May 19, 2012|By Anthee Carassava, Los Angeles Times
  • Greek leftist leader Alexis Tsipras' promise to end austerity agreements that Athens has signed in exchange for multibillion-dollar bailouts has shaken markets and riled international creditors, who have threatened to strip Greece of the rescue loans keeping it afloat.
Greek leftist leader Alexis Tsipras' promise to end austerity agreements… (Alexandros Vlachos, European…)

ATHENS — Eva, a well-groomed pensioner, grasps her creamy white purse, glancing impatiently at her gold Cartier watch as she waits for the manager of an Athens bank. She is offered tea, cookies and orange juice, none of which the state bank usually provides, and none of which Eva accepts.

"I'm concerned," says the 82-year-old, who declined to give her last name because she was involved in a private transaction. "I'm thinking of withdrawing all my savings."

Greek banks have been bleeding money since inconclusive elections this month, and the rise of a Marxist-Leninist leader bent on bustingBerlin'sausterity crusade, plunged the country into the biggest political crisis in decades and raised the specter of a devastating default.

Frightened savers have yet to throng outside Greek banks in a harum-scarum draining of deposits. But this month's spate of withdrawals is far outpacing previous ones, increasing worry about a full-fledged run on banks, with the financial system already seriously strained.

Those with the most to lose are members of the middle class such as Eva, who says she doesn't have a large nest egg but has saved enough to feel comfortable. Middle-class Greeks have already borne the brunt of the financial crisis since it exploded more than two years ago and probably will feel the most pain if the country ends up being booted from the 17-nation Eurozone.

Most of the country's wealthiest people have already moved their cash to traditional havens, such as Cyprus and Switzerland, in what financial experts call a "silent bank run." But last week, the withdrawals became less silent.

As talks to form a coalition verged on collapse early in the week, Karolos Papoulias, Greece's grandfatherly president, gave pro-euro political leader Fotis Kouvelis a classified memo by the country's central bank governor in hope that its dramatic contents would help crack the deadlock.

The memo explained that Greek banks were losing as much as 700 million euros a day in withdrawals.

"Add about 100 million placed in 'buy' orders of German bonds, and the estimate is 800 million euros," equivalent to more than $1 billion, Papoulias said after he pushed the memo across the table.

"Altogether? In one day?" Kouvelis asked in amazement.

"Yes," Papoulias replied. "Altogether. One day, alone."

That was Monday. Since then the memo has been leaked to news media and confirmed by the president's office, becoming a bombshell for markets and skittish savers.

"There's a veneer of calm," an executive at a foreign bank in Athens said on condition of anonymity. "But it's a mess, and behind it all telephones are ringing, orders are flooding and headquarters [in London] are demanding tight, detailed, day-to-day reports" of all financial transactions.

Since the start of the debt crisis here at the end of 2009, depositors have withdrawn cash from banks at a steady pace of about $2.5 billion a month, draining deposits to a record low of $209 billion in March, a decline of 40% from $347 billion just before the crisis.

Any further uptick in the pace of withdrawals, experts warn, could shift lingering unease to panic within weeks. And then, said Jason Manolopoulos, a leading investment manager and author of "Greece's Odious Debt," "queues [will be] forming outside banks and whatever else comes with that."

"The bigger problem, however, is that the populace isn't prepared for what this may ultimately spell: a return to the drachma," Manolopoulos said, referring to the national currency that Greeks ditched for the euro 11 years ago.

Greece's 2.4 million pensioners and about 1 million civil servants, most solidly in the middle class before the crisis, probably would be the hardest hit by a return to the drachma: Few have large amounts of money set aside, and whatever meager pensions or income they collect would be deeply depreciated by a retreat to the old currency.

Civil servants and retirees have already seen their salaries and pensions cut by as much as 40%, while new or increased taxes bit into their remaining funds.

The next election, on June 17, is widely viewed as a referendum on whether Greece should stick with the euro. And though the majority of voters seem keen for the country to stay in the coveted currency club, growing droves are lurching to the left, siding with Alexis Tsipras, a young radical who wants to take on Europe's market-minded establishment while keeping Greece in the Eurozone.

His bold promise to shred austerity agreements that Athens has signed in exchange for multibillion-dollar bailouts has shaken markets and riled international creditors, who have threatened to strip Greece of the rescue loans keeping it afloat.

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