One of the mysteries of the Greek financial crisis is that there are any deposits left in the stricken country’s domestic banks. Since 2009, it’s estimated that €2-€3bn has been withdrawn from Greek banks every month. The pace has picked up markedly in recent days; on Monday alone €700m was taken out of the banks, and the Greek president told reporters: “The strength of banks is very weak right now.”
A friend recently returned from a 600km trek across the countryside outside of Athens. Many roadside shops and restaurants were abandoned or locked. Locals were not willing to accept cards. Everything had to be in cash, and she sensed a fear that money tied up in the banking system would be lost should it go into meltdown.
Yet according to Greece’s central bank, total deposits held by domestic residents and companies stood at €165.36bn in March. Given the likely sequence of events should Greece leave the euro – accounts frozen, converted into new drachmas and then devalued by around half – it’s extraordinary there is any money on deposit at all.
I can add little to the pundits speculating whether there will be a “Grexit”. But the lack of focus on Cyprus is surprising, especially given the 80,000 Brits living there. It is, of course, an independent country with its own central bank. A blog for British residents I read this week tried to calm fears about a knock-on from Greece, claiming the island has a robust deposit protection scheme. So did Iceland. Cyprus’s out-sized banking sector is equal to 835% of the island’s GDP, says the FT.
More worryingly, the operations of the Cypriot banks in Greece alone are equal to 130% of Cypriot GDP. Some claim the island has benefited from flows out of Greece. But when one of the country’s leading banks this week required a £2bn cash injection, it doesn’t ring true. Economists who talk about contagion from Greece always point to Spain and Portugal. But surely it will be Cyprus next? And if the British in Cyprus have sense they won’t rely on articles extolling the island’s deposit protection scheme – although savers here with the Bank of Cyprus (UK) are covered by Britain’s compensation scheme.