A Run on Greek Banks? Today?
A woman asks for money in Athens next to a newsstand as journalists staged a 24-hour strike to protest cuts to jobs and salaries prompted by the country’s financial recession on May 28. Photo by Louisa Gouliamaki/AFP/Getty Images.
Paul Solman frequently answers questions from the NewsHour audience on business and economic news here on his Making Sen$e page.
Allow me to ask you all a question for a change: If you had money in a Greek bank, why wouldn’t you withdraw it immediately? InTrade, the online betting market based in Dublin which I’ve referenced often, especially on Twitter, now makes the odds of “any country currently using the euro to announce intention to drop it before midnight ET 31 Dec 2012” at 41 percent. Greece would almost surely be the first such country to do so, returning to the drachma, as Harvard’s Ken Rogoff suggested to us two years ago.
A Greek exit from the euro is now being called a “Grexit.” It would be followed, almost certainly, by a freezing of all Greek bank deposits. So if a Grexit is imminent, wouldn’t you be nuts to keep your euro in a Greek bank before they get converted into less valuable drachma? You’d run down to the bank ASAP, right? Indeed, if this page were read in Greece, I can see an argument against posing the Grexit question so pointedly — it might contribute to triggering a bank run.
My frequent tennis partner, economist Larry Kotlikoff of Boston University, was predicting bank runs across Europe this week or next. And though he’s been wrong before about Greece, I can’t see the flaw in his reasoning this time, or for that matter why a run hasn’t happened already.
And when I sent a draft of this post to him last night to ask if it was OK to run, here’s what he replied: “Not next week, not this week. Tomorrow.”
Guess we’ll see soon enough.
This entry is cross-posted on the Rundown– NewsHour’s blog of news and insight.