A Lesson From the Greek Crisis: Safe Deposit Boxes Are Not Safe
Last week the Greek government imposed capital controls to prevent cash from escaping from the Greek banking system, which is on the brink of collapse. These repressive financial measures, which were invented by "Hitler's banker" Hjalmar Schacht in the 1930s, include the closing of banks, limiting cash withdrawals from ATMs to 60 euros ($67) per day, and the banning of all money transfers via credit and debit cards to accounts held in foreign countries. Despite these Draconian controls, Greek banks continue to hemorrhage cash and, after yesterday's referendum, it is probable that the daily limit on withdrawals from ATMs will be tightened. Worse yet, the reeling Greek public suffered another shock yesterday when Deputy Finance Minister Nadia Valavani revealed to Greek television that the government and banks had already agreed that people would also not be allowed to withdraw cash from safe deposit boxes for as long as the controls were in place. This may be part of a fallback plan if the ECB ends its bailout of the Greek banks. The government with the banks' connivance would seize the cash euros stored in these boxes and compensate their lessees by crediting an equal sum of euros to their increasingly inaccessible checking deposits. The cash would then be fed into ATMs to postpone the day of reckoning for Greece's zombie fractional-reserve banks.
In the meantime, the market has been working to provide a private, nonbank alternative for Greeks to safely store cash. In Dublin, Ireland enterprising diamond dealer Seamus Fahy, who owns Merrion Vaults, is offering a 15% discount for Greeks who are able to evade the fascist capital controls and smuggle their cash out of the country. As Fahy puts it: “If you lived in Athens, and had 200,000 euros, wouldn’t you try to get it out?” In addition Fahy is considering opening a branch of Merrion Vaults in Athens. He is already advertising his services on Greek-Irish community web sites.
In Greece itself, where business in many sectors has virtually come to a standstill, the sales of home safes are booming. George Moschopoulos, who has been selling safes for 40 years, reports a fivefold increase in his business in the last five years compared to the years before the crisis. Predictably, as Greeks have drained cash from their bank accounts since the financial crisis of 2008, home burglaries have skyrocketed. In 2012, there were almost 88,000 cases of burglary, which was a 76 percent increase from five years earlier. This year an elderly couple was robbed of their entire life savings of 80,000 euros.
Of course these market alternatives for securing cash beyond the reach of corrupt governments, crony banks, and burglars hardly benefit those who have already been locked out by capital controls from withdrawing their property from safe deposits boxes. As the Greek crisis deepens, the contagion threatens to spread to the sovereign debt and the fractional-reserve banking systems of other countries. Faced with such a financial crisis, it is a good bet that no government will hesitate to impose capital controls, up to and including forcibly preventing owners from accessing the contents of their safe deposit boxes.