As the less than amicable discussions between Greece and its creditors lurch on (complete with Trojan horse reference), a Greek bank run remains the event that could bring things to a head very quickly indeed.
Greek bankers on Thursday stressed the need for an agreement to be reached between the government and Greece’s eurozone peers that will confirm the country’s European prospects, as the outpour of deposits continued unabated. Thursday was another tough day for bank liquidity, as depositors continued to withdraw their savings for fear of a rift in talks between Athens and the eurozone.
Banks estimate that since the start of the week accounts have seen their balance shrink by another 2 billion euros and acknowledge that unless this trend is contained and reversed they risk finding themselves in big trouble without the dynamic intervention of the European Central Bank (ECB).
The ECB, however, has appeared reluctant to offer additional support without an agreement between the eurozone and the Greek government. On Wednesday the ECB’s governing council approved a small increase of emergency liquidity assistance (ELA) to Greece (by 3.3 billion euros), which can only marginally cover the needs of local lenders for the next few days.
Needless to say, there have been rumors of capital controls:
If there is an agreement at Friday’s Eurogroup the clouds of doubt will be dispelled. If not, the upcoming three-day weekend may likely test the Greek credit system to its limits, they say.
In a meeting on Thursday between Bank of Greece Governor Yannis Stournaras and Deputy Prime Minister Yiannis Dragasakis, the former said that the outflow from the credit system is under control, adding that “we are here to avoid an accident.”
Bank officials, however, make no secret of their concern about the course of negotiations and the uncontrolled rumors that undermine confidence, noting that a liquidity accident could come about at any moment without any major or dramatic event triggering it.
“Liquidity accident”!
Meanwhile the Financial Times reports (my emphasis added):
Some members of the [European Central Bank’s] governing council believe that if a solution is not agreed between Athens and the eurogroup by the end of the week, the ECB may then have to review the solvency of Greek banks. The approval of the latest increase lasts for two weeks, but the lending programme, known as Emergency Liquidity Assistance, can be reviewed at any time.
A two-thirds majority of the governing council’s 21 voting members would be needed to end the ELA — which would in effect force Greece to adopt capital controls or quit the currency area.
That this is even being talked about will not reassure depositors.