Anxious Greeks pull money from banks amid fears of capital controls

10/6/2015

By Kerin Hope

Two weeks after Greece’s leftwing Syriza party won power at a general election in January, Panayotis Fotiades pulled his deposits from an Athens bank.

“I felt certain there’d be a confrontation before long with the troika [of bailout monitors],” said the 55-year-old businessman.

Like other Greek owners of small and medium-sized companies in Greece, Mr Fotiades feared a radical government would resort to capital controls if relations with the country’s creditors deteriorated sharply.

To protect his savings he bought a brand new Mercedes-Benz car, then took the advice of a financial consultant and invested the remainder in money market funds based in Luxembourg.

“I didn’t want to sit by and see my hard-earned money disappear in a bail-in,” he said, recalling a banking collapse in Cyprus in 2013, in which the government raised almost €8bn by taxing bank deposits of more than €100,000 after imposing the eurozone’s first capital controls.

Many other Greeks appear to be taking similar precautions. Even as the economy has been sinking, new car registrations have soared this year as worried Greek depositors seek out alternative havens for their money. They rose 27.9 per cent in May on top of a 47.2 per cent increase in April.

For Greece, the steady outflow of deposits from its banks is a dangerous vulnerability made worse by its cash-strapped government’s prolonged stand-off with its bailout creditors. Already weakened banks are seeing their liquidity evaporate and the European Central Bank has warned there are limits to its support.

Athens could eventually impose capital controls to stanch the bleeding of deposits but that would also risk turmoil for basic business and financial transactions and threaten devastating consequences for the wider economy.

“The continuation of these outflows significantly increases the risk that the local authorities will impose capital controls to limit deposit outflows, which in our view would be tantamount to a bank deposit default,” Moody’s, the rating agency, warned in a report this week.

Hopes last week that Greece was nearing a deal with its creditors that would give its cash-strapped government access to €7.2bn in bailout cash have been dashed, with the two sides seemingly moving further apart in recent days.

Discussions ground to a standstill on Wednesday amid mounting signs Germany was no longer willing to compromise and was urging a more hardline “take it or leave it” approach towards Greece. “They’re really at the end of their tether,” one senior eurozone official said of the Germans.

Funds began fleeing Greek banks late in 2014 when the previous centre-right coalition government clashed with bailout monitors — the European Commission, the International Monetary Fund and the ECB — over implementing structural reforms. The outflows picked up speed during the election campaign as Syriza built a decisive lead in opinion polls.

Fokion Karavias, chief executive of Eurobank, one of four big Greek lenders, said about €30bn had left the system since December, leaving banks dependent on the ECB for liquidity.

“There’s been a net outflow of deposits almost every week since December. It’s been less in the second quarter than the first, but the outflows are still going on,” Mr Karavias said.

The biggest hit came in January and February — when the Syriza-led government took power — with €20bn of withdrawals. Outflows eased to €1bn in March, when Greece resumed talks with creditors.

“The smart money left early on . . . The shipowners pulled out funds and manufacturing companies set up accounts outside Greece with foreign banks so they could be sure they’d continue trading,” said an Athens-based banking analyst.

As Alexis Tsipras, the radical prime minister, issued warnings in recent weeks that Greece would default on an IMF loan instalment rather than miss a payment to pensioners and public sector workers, rumours emerged before each bank holiday that capital controls were imminent.

“I went to the bank and withdrew all my savings in cash each time it happened,” said Eleni Papageorgiou, a former finance ministry employee. “I put them back in my account a few days later when I felt secure again.”

Fears of a default last week drove another increase in withdrawals. More than €500m left the system on Friday, the day Greece missed a €300m payment due to the IMF, saying it would bundle up four separate loan instalments and instead make a single €1.5bn payment at the end of June.

“I was spooked. It looked at first like a real default so I rushed to the bank,” said Mrs Papageorgiou. “But how long can this situation go on for?”

Banking regulators are watching closely, with Greek banks required twice a day to report their deposit outflows to the central bank, and once a day to the ECB’s single supervision mechanism, the new eurozone banking watchdog.

Most large depositors by now have pulled out their funds, the bank analyst said.

“Last month the amounts being moved by individual depositors were noticeably smaller, between €200,000 and €100,000. We’re getting to the bottom of the barrel,” he said, estimating Greeks had stashed about €5bn under mattresses and floorboards since January.

Meanwhile, Greece’s 3.5m pensioners and civil servants fret that despite Mr Tsipras’s promises, the government may be unable to pay them this month.

Some pension payments were delayed for 12 hours last month by what the finance ministry claimed was a computer glitch. It was later revealed that the state payment agency had temporarily run out of funds. This month, payments to workers at a state organisation disbursing EU subsidies were held up for a day.

Areti Simopoulou, a retired store owner, said she heads for the cash machine at her local bank branch at the end of the month and withdraws all her pension money at once.

“I used to take out half and leave the rest for an emergency,” Mrs Simopoulou said. “Now I feel relieved it’s there and make sure I take out every last lepto [cent].”

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