Wednesday, May 16, 2012

Greece bank runs : a precursor to exit?

Greece exit seems more and more likely now. The latest piece of news around a bank run in Greece might very well be the beginning of the end.

In a nicely written analysis Tim Duay argues why Greece is running out of time. Here’s what he says

-“ A bank run in the absence of a functioning government.  Is there anyone ready to push the button on a bank holiday with capital controls?  Or is this about to devolve into a free-for-all flight of capital?”

He cites Bloomberg which reports that:

“The level of funds in Greece’s state coffers has fallen below 1.5 billion Euros ($1.9 billion),”

My own analysis shows that Bond markets are not yet fearful. Spanish and Italian yields have shot up in the past few days but are still much lower than the highs made a few months back. It almost seems as if the bond markets are ready for a Greece exit and might even be hoping that it happens! Of course the yields are going to rise but the fact that they have not even cross the highs made a few months back shows that bond markets are much more ready now.

As for equity markets, the US markets did fall yesterday and Asian markets are down in the morning but the extent of fall is barely half percent. It seems that even the Equity markets are not too worried about a Greece exit.

Greece has dug itself into a hole from which it is nearly impossible to emerge without a severe battering. With debt at 160% of GDP, an economy in severe recession and a quarter of the population unemployed, it needs serious and painful therapy. Greek politicians, rather than take the blame by executing the EU plan, would probably prefer to exit EU and blame EU/ECB for the all the pain.