The Greek government may have felt good going into the weekend about stiffing the IMF of a debt payment this week yet the country continued to edge closer to a financial catastrophe. The latest indication of just how close the country is to bankruptcy comes courtesy of investors, who pulled a stunning €1 billion from Greek banks over the course of Thursday and Friday.
Greek banks are already extremely weak, depending on the ECB for some €80.7 billion in Emergency Liquidity Assistance. That’s about 60% of total deposits in the Greek financial system as of April 30th.
Basically Greece is woefully insolvent and relying on the day to day generosity of the ECB to prevent a roughly 40% forced “bail in”. Such a bail-in would mean depositors would see 40% of their savings vanish at the stroke of a pen.
This fact hasn’t gone unnoticed, with an estimate €700 million leaving Greek banks on Friday alone.
Nervousness increased this week particularly because Greece admitted its coffers are totally empty and was forced to “bundle” its €345 million payment to the IMF with other future payments, into a lump €1.5 billion payment.
This future payment will likely never happen and the markets know it.
The outstanding amount of the total deposits of the private sector (households and corporations) has declined to under €130 billion or lower than the levels at early 2004.
The new capital flights saw total net outflows in the last 7 business days of €3.4 billion, posing a serious threat to the stability of the Greek banks.
Put another way, 2.5% of all Greek deposits were pulled in just the past 5 days.
The banks were likely saved by the conveniently timed weekend but look for the bank runs to continue the second they open for business on Monday.