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.