‘Money is being pulled out of Greek banks at
an alarming rate, and if something dramatic is not done quickly Greek banks are
going to start dropping like flies. As I detailed yesterday, people do not want to be stuck with euros in Greek banks when
This is a major move by the European Central Bank, and it is going to shake confidence in the Greek banking system even more.
There are already rumors that the Greek government is considering placing limits on bank withdrawals, and many Greeks will be tempted to go grab their money while they still can.
Once strict currency controls are put in place, the population is likely to respond very angrily. If people can't get their money there is no telling what they might do.
We are reaching a critical moment. Many fear that a full-blown "bank panic" could happen at any time. The following is from a recent Forbes article....
pressing problem isn't a splintered legislature that may balk at delivering the
reforms that the IMF and European Community are demanding in exchange for the
next tranche of bailout money. It's a disastrous, old-fashioned run-on-the
bank. "For a year, Greeks have been sending their savings from Greek banks
to foreign banks," says Robert Aliber, retired
professor of international economics from the
These banks would have collapsed already if not for the support of the European Central Bank and the Greek Central Bank. This was described in a recent blog post by Paul Krugman of the New York Times....
But where are the euros coming from? Basically, banks are borrowing them from the Greek central bank, which in turn must borrow them from the European Central Bank. The question then becomes how far the ECB is willing to go here; is it willing, in effect, to lend enough money to buy up the entire balance sheet of the Greek banking sector, given the likelihood that this sector will be left insolvent by Greek default?
Yet if the ECB says no more, Greek banks stop operating — and it’s hard to see how they can be restored to operation except by ditching the euro and using something else.
That is why the announcement that the ECB is cutting off funding was so dramatic. The ECB is starting to pull back and that is a very bad sign for the Greek banking system.
For the moment, the Greek Central Bank is continuing to support the Greek banks that the European Central Bank is no longer providing liquidity for. A Reuters article explained how this works....
The ECB only conducts its refinancing operations with solvent banks. Banks which fail to meet strict ECB rules but are deemed solvent by the national central bank (NCB) concerned can nonetheless go to their NCB for emergency liquidity assistance (ELA).
But this emergency liquidity assistance is not intended to be a long-term solution as a recent Wall Street Journal article noted....
The ECB's emergency-lending facility isn't intended as a long-term fix. National central banks must get approval each month that they want to let their banks access the facility from the ECB's governing council, which can veto use of the program.
truth is that we are heading for a financial tragedy in
Steen Jakobsen from Danske Bank said outflows are becoming unstoppable, not helped by open talk in EU circles of `technical’ plans for Greek withdrawal.
has a self-fulfilling prophecy built into it and I don’t think we can get to
June. The fuse is burning and the only two options now are a controlled
So what should we expect to see next?
James Carney of CNBC says that he believes that it is inevitable that
looks increasingly likely that
widespread talk about
The Greek government may soon announce a limit on the amount of money that can be withdrawn on a single day.
The Greek government may also soon announce a limit on the amount of money that can be moved out of the country.
Those would be dramatic steps to take, but if nothing is done we are likely to watch the Greek banking system die right in front of our eyes.
A Greek exit from the euro seems more likely with each passing day. Such an exit would have a devastating impact on the Greek economy, but it would also dramatically affect the rest of the globe as well. The following is from a recent article by Louise Armitstead....
That is a big hit for such a little country.
what would it cost the globe if
That is something to think about.
We are spending ourselves into oblivion, and we are heading for a national financial disaster.
Unfortunately, most Americans are totally oblivious to all of this.
Instead of getting educated about the horrific financial crisis heading our way, most Americans would rather read about why Jennifer Lopez is leaving American Idol.
But those that are listening to the warnings will be prepared when the storm hits.
You better get prepared while you still can.