May 2012 Archives

Further Thoughts on the Lack of Greek Panic

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In my previous entry, I wondered about why there wasn't a banking panic going on in Greek.  However, my conclusion is rather unsatisfactory - essentially that there isn't a panic because your average Greek isn't panicking, yet.

Upon further reflection, I believe I know why the average Greek isn't panicking - and interestingly enough, it's the exactly same reason he should be panicking.

We got where we are today because the average Greek voted out the two parties that were cutting government spending in an attempt to keep Greece in the Euro.  Much like the average American voter (who wants to cut spending, increase services, cut taxes and balance the budget) the average Greek wants things that are mutually incompatible:  To increase government spending, balance the budget, and remain in the Euro.  He probably also wants to cut taxes, too, but I haven't read that, specifically.

Consequently, it's expected that a majority of Greeks will vote for SYRIZA, "The Coalition of the Radical Left", which is saying, "we can spend more money and stay in the Euro".  I believe the plan for this is to loudly point out to the rest of Europe that, if the rest of Europe stops giving Greece money, Greece will simply default on all the previous loans they've gotten, and anyway, it'll hurt the rest of Europe if the Euro is seen as unstable, so the Euro needs Greece more than Greece needs the Euro.  All of which may be true, but is unlikely to make the rest of Europe sympathetic with Greece. Helping out your brother-in-law who lost his job is one thing; it's quite another when he starts making threats to break your china if you tell him he has to start looking for a job.

The reason the average Greek is going to vote for SYRIZA is because he thinks it means Greece won't leave the Euro.  If Greece won't leave the Euro, why should he be worried about his money deposited in Greek banks in Euros?  If he thought SYRIZA's election put Greece at risk of leaving the Euro - he'd vote for another party. If he did that...there would be much less need to panic about Euros in Greek banks.

This seems to suggest that panic won't happen in Greece until well after the elections. The question is, to what extent is a SYRIZA election going to finally give the rest of Europe the backbone to say "Enough is enough"? In the past, they've been remarkably good about kicking the can down the road - it's possible to imagine them saying "well, we'll let you slide on your targets for six months out of respect for democracy", and just keep allowing this thing to not reach a resolution. It seems Greece isn't going to voluntarily leave the Euro - they're going to have to be kicked out, and we're still some time from that happening.

What's Going on in Greece?

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I predicted the end of the Euro back in November, a bit prematurely. However, as the worm continues to turn in Greece, it is becoming more and more obvious that (at least) Greece will leave the Euro. The messy details of what happens are rather terrifying, when you think about how Greece, tactically, is going to have to redenominate all of the Euros on deposit into Drachmas.

If I lived in Greece, I've thought for a while that I'd've taken my Euros out of the bank, completely, and tried to place them somewhere else.  At least in a bank in another Eurozone country - but if you believe Greece is about to leave the Euro, you also believe the Euro is about to decline in value, so as long as you're moving it, why not to a US bank?

But, as much as there have been stories in the past week about a "Greek Bank Run" on the order of a million or so Euros a day, there have been absolutely no stories about panics - crowds standing outside banks demanding their money and not getting it.

This has puzzled me, but I think I have thought it out. The money leaving Greece right now are the people who are paying attention, and relatively savvy.  They're just doing electronic transfers - ordering the banks to make changes to entries on a spreadsheet, in essence.  The banks could conceivably do this until their assets are zero, and it would be relatively orderly.

The problem is that at some point the average citizen - Iōséph Retsina - is going to realize that, next week, his Euros are going to turn into Drachmas, probably.  And, if that's going to happen, he needs to get to the bank with a sack, right now, and withdraw everything. When everyone has that same realization at the same time, then there will be a panic.

What happens then will be interesting.  They may still not have a government to take care of this problem.  What they'll need to do at that point is close the banks, freeze withdrawals and shift to the Drachma, immediately.  Will the "technocratic" caretaker government be able to accomplish that?

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This page is an archive of entries from May 2012 listed from newest to oldest.

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