Why A Greek Bank Run Has Begun

Greece is sinking into an economic depression and the Greek people are sick of the heavy financial burdens they bear to receive bailouts from the European Central Bank (ECB). The people have taken to the streets repeatedly to loudly protest those burdens but the ECB ignores them, while cutting deals with the Greek government to continue the burdens placed on the Greek people.

The Greek people responded by bringing down their government only to have the replacement government reaffirm those burdens. That government fell as well. On May 6th, new elections were held but no government has been formed, leaving no-one in charge and creating chaos. In June, this leaderless nation will vote again.

No surprise, on Monday, the Greek people began a run on their banks seizing their Euro based savings, fearful the banks will default, which is a strong probability if the ECB bailouts end, for Greece does not have money to backstop its banks.

Without bailouts, Greece cannot pay its bond debt and will default, the repercussions of which will be felt by banks and investors all over the world who hold Greek debt. Fearing default, and with no government in charge, the ECB does not want to advance any more funds.

If Greece defaults, Greece could be thrown out of the Euro Zone, and if so, can no longer use the Euro as its currency. This would force Greece to return to its prior currency, the Drachma. But with no limitations and nothing of value, such as Euros or gold, standing behind the Drachma, the Greek government would be free to print as many Drachmas as it wanted, soon turning Drachmas to largely worthless paper and destroying the savings of the Greek people.

Fearing this, and a possible freezing of their bank accounts, the Greek people are grabbing their Euros as fast as they can.

But there is a solution, yet it is one the ECB, nor the International Monetary Fund, nor the U.S. Fed wants to hear. The banks and investors holding Greek debt are going to have to write off most of that investment, which will bring losses so large, many of them will need bailouts.

But it is better to face it now, than to allow the situation to deteriorate even further, causing bigger write offs and bigger bailouts.

Greece is small and accounts for just 3% of the Euro Zone economic activity. But Euro giants Spain and Italy are waiting in the wings with problems comparable to Greece's and the sooner their problems are also addressed, the better for all of us. One other thing none of us should ever forget is that we are all brethren and what effects some will eventually effect all.

Dick
To learn more, please see "ECB stops operations with some Greek bank-sources," Reuters http://www.reuters.com/article/2012/05/16/ecb-greece-banks-idUSF9E8DR00F20120516 "Greece Teeters as Talks Fail: Depositors Withdraw $898 Million on Monday Alone; Prospect of Euro Exit Looms," The Wall Street Journal http://online.wsj.com/article/SB10001424052702304371504577405931025784516.html