Two weeks ago, Frank Hollenbeck wondered in Mises Daily what the Greek government will do to keep paying its bills while keeping cash flowing to its banking system which is facing a slow-motion bank run:
Over 25 billion euros have been withdrawn from Greek banks since the end of November 2014. But there’s a problem. Fractional-reserve Greek banks do not have the funds to cover all the withdrawals if trends continue. Current non-performing bank loans in Greece are close to 40 percent and banks hold large amounts of high risk Greek government debt.
Despite rumors in the press, there are no European mechanisms to force Greece out of the eurozone. Greece would have to be the one to decide to leave. So for now, Europe will continue to pretend it will be paid back, and Greece will continue to pretend it is implementing significant structural reforms.
Hollenbeck suggested that a "bail-in" is possible although other more-likely options remain.
Zero Hedge now reports that the Greek state has decided to raid pension funds and that it is generally "busy thinking of new ways to raid its own population just to repay the 'loathed' Troika."
The Greeks continue to have at least two problems. The Germans and other wealth-producers/creditors of Europe have decided to stop the untrammeled flow of free money to Greece, so this means Greece must come up with money internally to (1) pay the IMF and international creditors and (2) cover the cash needs of fractional-reserve and highly leveraged depository institutions. The latter problem is only getting worse as savvy depositors are getting their euros out of Greek banks while they still can. Indeed, Hollenbeck's "25 billion" number can now be updated since Reuters reports "Greek banks saw deposit outflows of €300 million the highest in a single day since a February deal with the euro zone that staved off a banking collapse."
As a darkly humorous side note, we might note that Greek politicians are now saying that the Germans owe Greece money as reparations for Nazi war crimes. Seventy years later. One observer noted: "according to Godwin's Law, the Greeks just lost the debate."
