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Another chart of the day: Greek bank deposits collapse

The chart below via Reuters’ Scott Barber is what an economic depression looks like. It covers Greek bank deposits from 1998 to present.

You can clearly see a credit boom out of all proportion to economic growth as deposits went from almost 80 billion to nearly 240 billion euros in ten years. That’s a trebling in deposits in a decade underneath which lies an unhealthy growth in credit that fuelled those deposits. Since the crisis hit in 2008, deposits have come down to about 160 billion euros. But in recent days there have been stories of massive withdrawals of deposits from Greek banks.

Some fear a bank run could be taking place, since the talk of a Greek exit from the euro zone has Greek depositors worried about an Argentine-style money grab. As I wrote in February about a Greek euro zone exit:

The New Drachma will be heavily depreciated and that will cause the price level to rise, which amounts to an instantaneous lowering of living standards. But if the currency can be stabilised then after this initial period, the devaluation doesn’t have to be inflationary. Iceland’s 2009 devaluation and capital controls is a guide here. In Argentina’s default, state coercion in the form of re-denominating non-Peso bank deposits helped. I remember being aghast at this theft at the time. But the reality is the state will want to drive out the use of all other media of exchange and so will be forced to do this with New Drachma as well.

-How and why Greece will leave the euro zone

Depositors know this and some are withdrawing funds just in case.

It’s not clear what Europe will do but we are certainly at a pivotal point in the crisis.

About 

Edward Harrison is the founder of Credit Writedowns and a former career diplomat, investment banker and technology executive with over twenty years of business experience. He is also a regular economic and financial commentator on BBC World News, CNBC Television, Business News Network, CBC, Fox Television and RT Television. He speaks six languages and reads another five, skills he uses to provide a more global perspective. Edward holds an MBA in Finance from Columbia University and a BA in Economics from Dartmouth College. Edward also writes a premium financial newsletter. Sign up here for a free trial.

2 Comments

  1. David_Lazarus says:

    The same is happening in Spain and Italy. Bank deposits in Spain and Italy are falling by around €70+ billion a month in each country. There is a silent bank run on the periphery but it is not being reported. The money is turning up in Germany Netherlands and UK. Though if the problems in the periphery are not handled well then there will be problems in the core and where will that money run to next?