Mass Exodus From Greek Banking System As Country Nears Default Spikes Interest In Precious Metals, Bitcoin

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The current situation in Greece is coming down to the wire, with Greece having less than 15 days to pay more than $1 billion in debt repayments to its international creditors. The prospect of a Greece default has led European leaders to prepare contingency plans and US officials saying their country should do the same. A major puzzle piece to the eurozone project, Greece, is on the precipice of becoming a poor country to the eurozone’s south.

Opinion in Greece is split. The Bank of Greece has given plenty of warning about the reality of default, while parliament’s speaker Zoe Konstantopoulou of the Syriza party published a report from the “Debt Truth Committee” saying that Greece’s debt is “odious” and should not be repaid:

“…The Committee considers that Greece has been and still is the victim of an attack premeditated and organized by the International Monetary Fund, the European Central Bank, and the European Commission,
the report read. “This violent, illegal, and immoral mission aimed exclusively at shifting private debt onto the public sector.” This sort of defiance of the eurozone has not sat well with many European leaders.

“The Greek government apparently hasn’t realised the seriousness of the situation yet,” secretary-general of the German Christian Social Union, Andreas Scheuer, told Rheinische Post. “They are behaving like clowns sitting in the back of the classroom, although they have received explicit warnings from all sides that they might fail to pass to the next grade.”

Eurozone partners and the IMF are looking to Greece to cut its pensions, a move Greece is not willing to make, though some in its government have spoken of a willingness for “pension reform,” likely a move to ensure Greece doesn’t buckle under rebellion as “pension cuts” would not go well, but similar in principle.

Euclid Tsakalotos, Greece’s chief negotiator, believes talk of a “Grexit” is a ploy by European partners and bankers to put pressure on Greece for the  €1.6bn payment due to the IMF on June 30. “At the moment we haven’t got the money,” he said, commenting that Athens is “squeezing every last bit of drop of liquidity” to service debt so far.

“There is no financing, we haven’t got access to the markets, we haven’t got money that hasn’t been paid since the summer of 2014 so obviously we won’t be able to have the money to pay that.”

International Monetary Fund chief Christine Lagarde told Greece the country would not be given a grace period if it fails to make a payment by the end of June.  Chancellor Angel Merkel has noted there is still time to reach deal on aid.

Greek Prime Minister Alexis Tsipras labeled the IMF’s policies “criminal” last week, claiming Greece would immediately be considered in default unless it pays about 1.5 billion euros ($1.7 billion) due to the fund by June 30.

“It will be in default — it will be in arrears vis-a-vis the IMF, yes, on July 1,” Lagarde told a Luxembourg press conference  where euro-area finance ministers were meeting on Thursday to discuss  Greece. “I hope it’s not the case, I really do.”

Greece’s central bank has been clear about the likelihood of default. Finance ministers all over Europe are making contingency plans for a messy bankruptcy. Talks between Greece, and its creditors eurozone and IMF have stalled. Tsipras has accused the creditors of “pillaging” the country over the past five years.

“Failure to reach an agreement would …mark the beginning of a painful course that would lead initially to a Greek default and ultimately to the country’s exit from the euro area and, most likely, from the European Union,” the Bank of Greece stated. “Striking an agreement with our partners is a historical imperative that we cannot afford to ignore.”

The German Finance Minister, Wolfgang Schäuble, has confirmed Berlin is making contingency plans for a Grexit.  “We are prepared for all eventualities” Dutch Finance Minister, Jeroen Dijsselbloem, told the Hague. Chancellor George Osborne has also said the UK is making contingency plans. The European Central Bank could cut off aid to the Greek financial system, which will lead Athens to impose more capital controls than it already has. Greece might need a new currency, making it the first country to exit the euro in the currency’s 16 year history.

Tensions are high throughout the Eurozone, devolving into a predictable political dark comedy.  The President of the European Commission, Jean-Claude Juncker, has accused the Prime Minister of Greece of lying. “I am blaming the Greeks [for telling] things to the Greek public which are not consistent with what I’ve told the Greek Prime Minister,” he said. Not all leaders have wielded such an iron fist.

“For Europe to be stronger, it must show solidarity and support to any country which needs it,” the Austrian Chancellor, Werner Faymann said in a meeting with the Greek President Prokopis Pavlopoulos.

“All this would imply deep recession, a dramatic decline in income levels, an exponential rise in unemployment and a collapse of all that the Greek economy has achieved over the years of its EU, and especially its euro area, membership,” The Bank of Greece said.

“From its position as a core member of Europe, Greece would see itself relegated to the rank of a poor country in the European South.” This circumstance is not expected by some to be a drawn-out process.

“Things will not be so lengthy,” said one official in Brussels. “The ball, ministers will conclude, is very firmly in the Greek camp. I honestly believe this will be pretty short.”

“There is no financing. We haven’t got access to the markets, we haven’t got money that hasn’t been paid since the summer of 2014, so obviously we won’t be able to pay that, Euclid Tsakalotos told Reuters.

From Monday to Wednesday, Greeks pulled approximately 2 billion euros out of banks, with the pace of withdrawals increasing due to talks of grexit and collapse, and now talks of banks not opening on Monday have raised the stakes.  More data on the pace of withdrawals will be made available June 26 as part of the regular releasing of government data.  Greeks started pulling money out of the banks en masse in October, with the latest spike coming after talks between Greece and its euro zone an IMF creditors on an aid-for-reforms deal fell trough over the weekend.  Greece believes most of the money is staying in the country.

“The ratio of deposit flight abroad over the total drop in deposits in the last months shows that a larger percentage of outflows is staying in the country,” the central bank said.

US Treasury Secretary Jacob Lew warned Congress on Wednesday warned that the Greece situation will create problems for the US financial system.

“In today’s globally integrated financial markets, foreign shocks have the potential to disrupt financial stability in the United States,” US Treasury Secretary Jacob Lew told Congress on Wednesday “Although there has been some progress during Greece’s ongoing discussions with Europe and the IMF, the negotiations and the path to securing agreement are challenging and complex,” Lew told lawmakers. “We continue to urge a timely resolution so that Greece is able to continue to meet its obligations,” he said.

“Investors may seek incremental gains in yield for disproportionate amounts of risk. Banks, credit unions, and broker-dealers have lower net interest margins, leading some firms to increase risk by holding longer-duration assets, easing lending standards, or engaging in other forms of increased risk-taking,” he said.

Vigilante’s Take

This is not surprising but I anticipate there to be a lot of on the ground activity in Greece over the coming weeks at the populace level. With individuals taking money out of their banks, there is no doubt that “System D” in the country will grow and possibly thrive. Already, this year, interest in gold, silver and bitcoin is on the rise in the country. Gold has seen a recent uptick in interest on Google Trends:

goldgreece

As has silver:

silvergreece

And Bitcoin:

bitcoingreece

Although this interest has only increased slightly, I expect in the coming two weeks it will intensify, and particularly so if banks do not open Monday. In the TDV Newsletter (http://dollarvigilante.com/subscribe) we have been preparing our readers for this eventuality, demonstrating ways to diversify one’s finances and internationalize their lives, including with our special report Getting Your Gold Out Of Dodge (http://goldoutofdodge.com).  With the major exodus out of the mainstream banking system, Greeks will need tools with which to transact. Bitcoin, gold and silver are all in the position to fill this role, especially if there comes a period where Greece is without money. And if Greece is without money, one can anticipate that global stock markets, including the US stock market, will feel the pressure.

Originally Appeared At The Dollar Vigilante

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