Over the past several weeks we’ve documented the acute cash crunch that’s crippled the Greek banking sector and ultimately brought the country to its knees.
Since March, Greek banks have subsisted on a slow liquidity drip administered by the ECB through the Bank of Greece. Once Syriza swept to power on an anti-austerity platform in January, it quickly became clear to Mario Draghi that accepting collateral backed by the full faith and credit of the new Greek government in exchange for cash loans wasn’t a safe bet and so, the ECB shifted the burden to the Bank of Greece, making it more expensive for the Greek banking sector to obtain emergency funding.
As the crisis unfolded and Athens’ negotiations with creditors became increasingly contentious, Greek banks began to bleed cash. Eventually it became clear that the banks were relying entirely on the Eurosystem to meet outflows.
Meanwhile, banknotes in circulation surged, as cash usage jumped 44%, prompting Barclays to note that “the amount of banknotes in excess of the quota for Greece represents a liability of the BoG to the Eurosystem.” Essentially, we said, Greece was quietly printing billions of euros.
Now, with the ECB holding steady on the ELA cap and the banking system still hemorrhaging deposits despite the imposition of capital controls, Greek banks are running out of cash — literally.
WSJ has more [8]:
How long the remaining cash lasts and how unsettled Greeks become will be big factors in Sunday’s referendum on creditors’ demands for more austerity in exchange for more bailout funds. The tighter the squeeze, the more Greeks might vote “yes” to reconcile with creditors, analysts say.
As of Wednesday, Greece’s banking system had about €1 billion in cash left, according to a person familiar with the situation. Even with the €60-a-day limit on ATM withdrawals from Greek’s closed banks, “it’s a matter of a few days” until the money runs out, this person said.
By Wednesday, many ATMs in central Athens had constant lines of people waiting to withdraw their daily limit. The crunch has suffused the economy. Merchants report lower spending. Wholesalers can’t pay for supplies. Importers’ foreign counterparts won’t trade.
Greece’s cash crunch hit small merchants first. They are less able to get credit from their suppliers, especially those dealing in perishable products that are continually imported. Christos Georgiopoulos owns a gourmet supermarket in Plaka, a picturesque Athens neighborhood frequented by tourists. He sells Champagne and Russian crab legs.
Nobody is buying. “I haven’t had a single customer in two days,” he said Wednesday. He is shutting down his shop and says he doesn’t know when he will reopen. He gave some crab legs to his workers and is taking some home. “I haven’t paid my staff and don’t know if and when I will,” he added.
Cash is king. “Now you have almost every cardholder going to the ATM every day,” said Stefanos Kotronakis of payment-processing provider ACI Worldwide in Athens, which operates systems that drive ATMs. “Cash has a higher value now.”
Ellie Tzortzi, a partner at a Vienna-based digital-design and market research firm, is flying to Athens this weekend to pay her employees here in cash. “The last time I traveled with a wad of cash to pay someone’s salary was 10 years ago in Kosovo,” she said.
And AFP has more color [9] on the crisis facing Greek businesses:
Greece's dive into financial uncertainty is forcing struggling businesses to take unusual steps to survive, including hoarding euros in cash.
The government's announcement it was closing banks this week to stem a panicked rush to withdraw money, left many ordinary Greeks high and dry.
"I put aside as much cash as possible" in advance, said an Athens baker Taso Paraskevopoulos, who had expected the controls to be imposed as the country staggered towards a default on a debt repayment to the International Monetary Fund.
"I sometimes need hundreds of euros a day to pay suppliers and expenses, I can't allow myself to be caught short," he said, making it quite clear he blames the radical left ruling party SYRIZA for the crisis.
The capital controls forbid money transfers abroad, except by express permission from the Finance Ministry.
Businesses which import their raw materials have been the hardest hit, says Vassilis Korkidis, head of the National Confederation of Hellenic Commerce (ESEE).
As unease spreads, getting ones hands on cash has become a sort of national sport, with businesses from restaurants to car mechanics telling customers paying by card is no longer an option.
And what if the crisis drags on? asked Sotiris Papantonopoulos, head of online insurance broker Insurancemarket, which employs 70 people.
Launched in 2011 despite the financial crisis, the company was in expansion and had intended to take on other 60 people in the coming months, "but now everything is on hold," said Papantonopoulos, visibly upset after having to ask some of his employees not to come to work this week.
"If the measures remain in place for two months, well close, it's over."
So there you have it. The unthinkable — which we have of course been warning about for months — is unfolding before Europe's very eyes.
The crisis has officially moved beyond the negotiating table and has now manifested itself in a shortage of physical banknotes and the inability of Greek businesses to stock the shelves, leaving all of those who accused the tin foil hat crowd of fearmongering to look on in horror as the ATMs go dark, imports grind to a halt, and Greece rapidly descends into the Third World.
This is no longer speculation, it is a stark reality, and as Constantine Michalos, the president of the Athens Chamber of Commerce and Industry told WSJ, "in one week, two weeks, three weeks, it will be finished.”
