Tuesday, May 29, 2012

Can Greece muddle through (again)?

by Robert J. Samuelson

Washington Post

May 29, 2012

Regarding Greece, I am puzzled by this: Why hasn't there been a massive run on its banks?

Suppose you were Greek and had, say, 2,000 euros deposited in a local bank. Why would you leave it there? Speculation grows by the day that Greece will be forced out of the euro and create its own national currency, probably the drachma. Bank deposits would presumably be automatically converted from euros into the new currency.

Worse, it's widely assumed that once the change occurs, the new currency will rapidly lose value (aka "depreciate") against the euro, dropping as much as 50 percent. Given the risks, it seems that any sensible person would withdraw the precious euros from the bank and keep them as cash or redeposit them in a bank outside Greece.

But so far, a panic hasn't happened, though there has been a slow, steady drain of deposits.


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