Greeks Run on Banks as Euro-Confidence Wanes

In Pamplona, Spaniards run with the bulls. In Athens, Greeks run on the banks. Yes, folks a good, old-fashioned bank run is underway in Greece.

Greek Household and Corporate Demand Deposits

During the last couple of years, anxious Greeks have yanked a net €72 billion from the banking system — or nearly a third of total short-term bank deposits. And according to the scuttlebutt, withdrawals have been accelerating in recent days, as the “unthinkable” possibility that Greece might withdraw from the euro bloc has become increasingly thinkable.

So who could blame the Greeks for grabbing their euros before they turn into zeros…or, at best, drachma? In fact, given the chaotic conditions now unfolding in Europe, who could blame anyone for grabbing their euros before they turn into zeros?

Anxious Spaniards are also queuing up to withdraw their euros from the banking system. And many bond investors are behaving similarly: they are dumping Spanish government bonds and/or buying insurance against a default by the Spanish government.

You all remember Spain, don’t you, Dear Readers? That’s the country that, if it were an American high school senior, would be voted, “Most likely to follow Greece out of the euro zone.” Spain’s fiscal problems are not new news, but thanks to the renewed turmoil in Greece, distress has returned to the Spanish bond market.

Yield on Spanish Government 10-Year Bonds and Price of Insuring Spanish Bonds Against Default

As the chart above illustrates, the yield on Spanish government 10-year bonds recently touched a six-month high, while the price of insuring Spanish bonds against a default just hit a new all-time high.

That’s what we would call, no bueno.

Eric Fry
for The Daily Reckoning