WSJ: Greeks Continue to Pull Bank Savings

The spasm of panic in Greece about a possible exit from the euro zone may have passed, but deposit withdrawals are continuing and Greece’s banks face a weeklong wait for the money that will guarantee they stay afloat until a new government can be formed, according to bankers and government officials.

Greek savers withdrew over €700 million ($890 million) from their banks on Monday, according to President Karolos Papoulias, a foretaste of what may turn Greece’s feared exit from the euro into a self-fulfilling prophecy.

Despite no visible signs of anxiousness at Greek bank branches Wednesday, an official at a major bank said things weren’t back to normal.

“The situation has not calmed down, the money withdrawals continue,” the official said. Although the rate of outflows had slowed since Monday, he said there was “huge concern” among customers.

The steady outflow of deposits from Greek banks hasn’t yet turned into a bank run but economists have long warned that a run on banks could develop if the population fears that a Greek exit from the euro is nigh and that savings in bank accounts could be redenominated in a weak new national currency, the drachma.

Fears that Greece may be forced out of the euro mounted after the country’s leading political parties failed to agree on forming a coalition government following an inconclusive vote at the country’s May 6 elections, forcing new elections next month.

The vote delivered a deeply fragmented parliament and left the country’s two mainstream parties—that had backed a €130 billion bailout program designed to keep the country afloat and inside the euro zone—without an outright majority.

A bank run is the last thing Greece needs as it prepares a second election in mid-June, a senior official with the departing caretaker government said.

“It is absolutely essential that we have enough liquidity in the system during the pre-election campaign where the country’s presence in the euro zone will be addressed in an ugly and often irresponsible way,” the official said. “We need to avert a panic within Greece during this period.”

The key to that is the recapitalization of Greece’s banks, which have been technically insolvent since taking massive losses on their holdings of government bonds in Greece’s €200 billion debt restructuring in March.

The European Financial Stability Facility, the euro zone’s temporary bailout fund, has already transferred €25 billion in bonds to Greece’s bank recapitalization fund, and it intends to advance €18 billion in bridging finance to the system to tide it over until the new government can complete the recapitalization process after the elections.

Panayotis Thomopoulos, whose Hellenic Financial Stability Facility is in charge of disbursing the money, stressed in an interview that the money is already at the HFSF and can reach the banks within hours, once the necessary procedures have been carried out.

But he said the fund still needs the final feedback from five other agencies involved in the disbursement—including the European Commission, the European Central Bank, the EFSF and the International Monetary Fund.

These agencies still have to sign off on a so-called presubscription agreement, that would allow the HFSF board to make formal a decision “by Tuesday or Wednesday at the latest” on paying out the funds.

Mr. Thomopoulos said there was nothing in the comments that he had received so far to doubt the commitment of the creditors to going ahead with the recapitalization as planned.

“Because of the situation, we think the public would be calmer if it could see the money had already gone to individual banks,” Mr. Thomopoulos said.

“But we can’t rush things and break the law or make mistakes, because there are €18 billion involved,” he said.

Banks, however, are pressing hard for the money to be advanced sooner. “If the HFSF decides to move quickly today or tomorrow…then we can really stop the withdrawals from the banking system and avoid a bank holiday or something worse,” one banker said.

He said the banks were totally unprepared for converting back to a national Greek currency and would need “between six months and two years” to do so.

Greek banks have lost deposits steadily over the past two years as the population has either drawn down savings or moved them abroad as a precaution against a bank failure.

Meanwhile, banks have turned to the ECB to fill a funding gap that now accounts for more than 20% of the system’s assets—over €127 billion in all.

A spokesman for the ECB said it continues to support the Greek banking system, but declined to say how long it could continue to do so if savers keep pulling their money out.

A senior official with another Greek bank Wednesday said deposit outflows were still manageable but getting problematic.

“There are fears that if the situation is deteriorating, then maybe the public will panic and then we cannot really be in a position to handle the situation,” he said.

—Nektaria Stamouli, Alkman Granitsas and Stelios Bouras in Athens contributed to this article.
Write to Geoffrey T. Smith at [email protected] and Costas Paris at [email protected]