This loss of confidence in the Greek banks was easily avoidable. As this blog has recommended, the EU needed to backstop the Greek government's deposit guarantee using the temporary European Financial Stability Fund and then the long-term stability mechanism.
The result of the backstop would have been to stop the loss of confidence in the Greek banks by reassuring depositors that they could get their funds back. Instead, without the backstop, the combination of doubts about the solvency of Greek banks and the government has provided an incentive for depositors to withdraw their funds.
The figure is an indication of the massive loss of confidence in the country’s economy as it repeatedly came close to bankruptcy.
Evangelos Venizelos said only €16 billion of the funds withdrawn from Greek banks was sent abroad, mostly to the UK. The rest was largely spent as families and businesses ate into their savings, or hoarded by households preparing for the worst-case scenario - a debt default or Greece’s exit from the euro.
“This money, if it existed in the banks, would allow for loans to be made to businesses, for the economy to move, for unemployment to be tackled,” Mr Venizelos said in an interview on Antenna Television.
He stressed the importance of restoring confidence in order to encourage the return of funds to the banks, insisting that a new bailout deal and a major bond swap designed to slash Greece’s overall debt will strengthen the financial sector....
“Many billions are kept in homes. They are, as we say, in mattresses or in boxes,” the minister said of the missing deposits. “Of course, others have been spent on taxes, for families to live, for businesses to survive.”...
But with the possibility that Greece might default on its debts and ultimately have to leave the European Union’s joint currency, the euro, many depositors have also withdrawn their money for safekeeping elsewhere, either abroad or stashed in homes.