Bank runs have started in Greece remember how queues at Northern Rock flagged up the global financial crisis?
by Peter Cooper, Arabian Money Hearing that Greeks withdrew 800 million euros from banks in just two days last weeks amid scenes of chaos in branches and long queues in the summer sun brings back memories of the first bank run in two centuries in the UK at Northern Rock that signaled the imminent global financial crisis. Then it was the subprime mortgage crunch that did for the banks. In Greece a whole nation is about to go bankrupt. Is you have money then you certainly don’t want to leave it in a bank to be converted into drachma that will plunge in value. Worth less euro The euro may be worth 25 per cent less than it was a year ago in dollar terms but it is still a hard currency by comparison to anything the Greek Government can cook up in a crisis. Even the local authorities in Greece are furiously spending whatever cash they have on outstanding contracts, knowing that it won’t be long before the government seizes whatever they have got. The Greek debt crisis has been at boiling point for how long now? It’s over four years since we started reporting on it in earnest. However, clearly even the monumental patience of some long suffering Greeks is fading and this summer a panic mentality is starting to takeover. Once the crowd all decides to rush to the exit door at the same time, or into the bank, then the debt bubble really is about to burst and this becomes a self-fulfilling prophesy. Germany calling? Can Germany put up enough cash to fill the gaping hole in Greek bank accounts? Does it have the political will to do so? Even the International Monetary Fund is beginning to distance itself as far as possible from the sinking Greek ship of state. Of course the real analogy is not Northern Rock in the UK but the pulling of the plug on Lehman Brothers in New York that triggered the 2008 crash. At the time the authorities thought they could contain the fall-out. They could do no such thing. Will it be any different this time? Actually central banks don’t have as many policy levers to pull. They are out of ammo with the enemy at the gate, or at least in a queue at a Greek bank. Time to hold gold, not paper money?