Run on the Banks, as Greece Runs Out of Money

(FXTimes) 15 May 2012, 12:28PM/EDT – Under the spotlight again, Greece is now at the brink of an exit from the European Monetary Union (EMU). Breakdown in coalition talk further puts pressure on the euro. German Finance Minister Wolfgang Schaeuble is calling the vote a “referendum on whether the country stays in the euro” as noted in Bloomberg.com. If the re-election puts an anti-bailout parilament leader in charge ie. Evangelos  Venizelos of the socialist Pasok party, we can expect direction of a  Greek Exit (Grexit).

Greek bank run fears are surfacing as well. According to President Karolos Papoulias’s website, “Anxious Greeks have withdrawn as much as 700 million euros ($893 million) from the nation’s banks since the inconclusive May 6 election”. Just the prospect of a Grexit can cause a run on the banks because the exit would shut out funding except from the ELA as noted on ZeroHedge.

The hope of many EU bankers and political leaders is that Greece reforms and stays in the EMU. It will be painful, and unpopular, but necessary for the existential safety of the Eurozone. However, at the markets are losing hope, and this can be seen in the currency markets as the Euro slides across the board.  Whole Article

Bank deposits have been aggressively declining in Greece for over a year.  The phenomena, dubbed “capital flight” is well known throughout financial history…the money holders in society always know when things are about to burn to the ground, and they ‘get their assets out of harms way’ accordingly.  The Greeks have already voted with their money, and it is clear that they want out…they have now elected a parliament which is inclined to abandon the EU and the ‘grand package of austerity and bailouts’ which it has imposed, and now it is just a matter of follow through.  I expect that we will see the culmination of this drama in the next 75 to 100 days, as there are numerous critical hurdles, beginning with a payment of 435 million euros ($552 million) which the Greek government paid today.

To satisfy today’s bond payments, the Greek treasury has in fact released roughly 1/3 of its remaining capital.  In short, Greece will run out of money very shortly, and may not even have a choice whether to make the next round of payments.  They also may not have the financial ability to issue social benefit payments and make public payroll as early as July 1st, according to some analysts.  Clearly, such a failure to issue payroll and benefit checks would result in a massive wave of unrest in the already disturbed Greek society, and this situation is still developing (or should I say, “devolving”) rapidly.

(CNBC) 15 May 2012 4:00PM/EDT Attempts to form a government in Greece collapsed today, jolting financial markets at the prospect that leftists opposed to the terms of an EU bail out could sweep to victory in a June election and nudge the euro zone crisis into a dangerous new phase.  The tremors from Greece, compounding worries about Spain’s debt-laden banking system, ended any honeymoon for new French President Francois Hollande, thrusting the growing risks to the euro zone to the top of the agenda for his first meeting with German Chancellor Angela Merkel hours after he took office.

“I think people need to prepare for the eventual removal of Greece from the EU and investors are getting ahead of that before they’re forced to,” said Matthew McCormick, vice president and portfolio manager at Bahl & Gaynor Investment Counsel on CNBC’s “Closing Bell.” “It’s a political market and an event-driven market.”

Sources:
http://www.cnbc.com/id/47434632/
http://www.fxtimes.com/fundamental-updates/grexit-and-bank-run-prospects-continue-to-weigh-on-the-euro/
http://www.economist.com/blogs/freeexchange/2012/02/greece-and-euro
http://www.brookings.edu/research/opinions/2011/07/12-greece-resolution-yeyati
http://www.coyoteblog.com/coyote_blog/2011/11/greek-slow-motion-bank-run.html

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