(By Michael Snyder) Money is being pulled out of Greek (NYSEARCA:GREK) 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 Greece leaves the euro (NYSEARCA:EUO) and converts
back to the drachma. The fear is that all existing euros in Greek banks
would be converted over to drachmas which would then rapidly lose value
after the transition. So right now euros are being pulled out of Greek
banks at a staggering pace. According to MSNBC, Greeks withdrew $894 million
Greek banks on Monday alone and a similar amount was withdrawn on
Tuesday. But this is just an acceleration of a trend that has been
going on for a couple of years. It has been reported that approximately a third
all Greek bank deposits were withdrawn between January 2010 and March
2012. So where has all of the cash for these withdrawals been coming
from? Well, the European Central Bank has been providing liquidity for
Greek banks, but on Tuesday it was reported that the ECB is going to stop providing liquidity
some Greek banks. It was not announced which Greek banks are being cut
off. For now, the Greek Central Bank will continue to provide euros to
those banks, but the Greek Central Bank will not be able to funnel
euros into insolvent banks indefinitely.
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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….
The 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 University of Chicago.