Now that Greece has legislated away its sovereignty to Germany and enshrined its future as a vassal state of Brussels into law, Greek banks are set to reopen on Monday for the first time since PM Alexis Tsipras’ referendum call triggered a weekend ATM run three weeks ago and forced Athens to impose capital controls and declare a bank "holiday."
The ELA ceiling was subsequently frozen by the ECB which effectively meant the banks would have to hope that incremental daily withdrawals of €60 (the limit under capital controls) would not eat through their cash buffer (which at one point was under €1 billion according to some estimates) before some manner of deal in Brussels prompted the ECB to turn the liquidity drip back on.
Now that the path is largely clear for the commencement of formal bailout discussions and, perhaps more importantly for the short-term liquidity needs of Greek banks, now that a new circular funding scheme has been devised that will allow Greece to make a €3.5 billion payment to Mario Draghi on Monday, the ELA ceiling has been raised and officials in Athens have apparently decided that it’s safe to lift the shutters on the nation’s lenders. Here’s Reuters with more [5]:
Greek banks expect long queues but no major problems when they reopen on Monday for the first time in three weeks, although withdrawals will still be limited and capital controls will remain, senior banking officials said on Sunday.
The cautious reopening of the banks, and an increase in value added tax on restaurant food and public transport from Monday, are aimed at restoring trust inside and outside Greece after an aid-for-reforms deal last week averted bankruptcy.
The government on Saturday issued a decree ordering the lenders to pull up their shutters on Monday after they were closed on June 29 to prevent the system collapsing as withdrawals skyrocketed over worries on Greece's debt crisis.
The head of Greece's banking association Louka Katseli urged Greeks, who will be able to withdraw 420 euros a week at once instead of just 60 euros a day, to put their money back.
"Tomorrow when the banks reopen and normality is restored, let's all help our economy. If we take our money out of chests and from our homes - where they are not safe in any case - and we deposit them in the banks, we will strengthen the liquidity of the economy," she told Skai television on Sunday.
As well as getting a weekly limit instead of a daily one, customers will also be able to access their safety deposit boxes and withdraw money without a credit card.
Deposit boxes are not affected by the capital restrictions and clients can therefore take whatever they want from them, bank officials said. But restrictions on transfers abroad and other capital controls remain in place.
"The banks are ready and they will open all their branches on Monday," a senior official at Piraeus Bank, Greece's second-largest bank by assets, told Reuters.
"There might be queues because many people will want to withdraw money from their deposit boxes."
Well yes and no. Sure, some people "might" be in line to take money out of a safety deposit box, but one has to believe that the majority of those in the queues will be looking to withdraw the €420 weekly limit in case something else goes wrong and brings redenomination risk right back to the fore. Recall what we said in "Don’t Tell Merkel, Greek Banks Need An Additional €10-14 Billion Bailout [6]":
Even if a deal is reached this weekend and the ECB raises the ELA cap, it’s difficult to imagine that the deposit outflows will cease (would you trust your deposits in a Greek bank even with a "deal"?) and if capital controls are lifted, the situation will be even worse because Greeks will simply take the opportunity to withdraw all of their money at once.
Capital controls have not been lifted, but the same principle applies. That is, Greeks are now allowed to withdraw up to €420 at once as opposed to €60 per day so that’s exactly what they’re going to do - hence the expectation of "long queues."
Clearly, this is about managing perception. The only way that €420 per week is different than €60 per day, is that it will front-load the bank queues on Mondays and thus create a false impression of calm throughout the remainder of the week. In other words, it’s all about inertia.
Of course even if this works (i.e. even if effectively confining the bank queues to the first day of the week manages to create a false sense of stability or even manages to stem the outflows), Greek banks need billions in capital, meaning one or more of the following three things needs to happen: i) deposit flows need to reverse, ii) capital needs to be injected, or iii) NPLs need to stop rising. The problem is that "ii" won't work without "i", and "iii" is impossible until the economy turns around, which isn't likely under the terms of the new bailout.
So unfortunately, Greeks should prepare for the long-haul because as we noted in "As A Reminder, This Is What Capital Controls In Cyprus Looked Like [7]," a crisis of confidence is nearly impossible to reverse in the short-term and if there is any place on earth where confidence is in short supply, it's at Greek banks.
