As Greece heads toward a pivotal mid-June vote that may decide if it has a future in the eurozone, another high-stakes election takes place each day: the decision by Greeks whether or not to leave their money in the bank.
Early returns haven't exactly provided a vote of confidence in Greece's financial stability. President Karolos Papoulias acknowledged bank outflows of $900 million in the days after the inconclusive May 6 vote that saw surprising strength among anti-austerity forces. Other media have reported that as much as $3 billion in deposits have exited Greek banks this month.
The trend is nothing new: At every stage of the Greek drama, policymakers have acted to avert an immediate crisis by plugging a dam about to burst. But the near brushes with disaster and disbelief in the durability of the fixes have made it inevitable that the crisis would deepen as euro hoarding and deposit outflows accelerated.
A bank walk has quietly been under way well before the recent acceleration. Greek deposits held by corporations and households fell 30% from the start of 2010 through March.
Will Fear Spur Unity?
Now, as Greece's crisis snowballs toward a potential climax, analysts see a risk that a full-fledged run on Greek banks could spill over to other weak-link euro nations. The hope is that a spreading bank run would prompt Germany and its euro partners to implement a unified system of deposit insurance. U.S. stocks erased intraday losses on rumors of such a plan.
The worry is that the crisis will spiral and inflict economic damage faster than the unwieldy 17-nation union can respond.
Still, Jacob Funk Kirkegaard, research fellow at the Peterson Institute for International Economics, takes an unconventional view: A moderate bank run might be just what is needed to convince Greeks that radical politicians who want to spurn its International Monetary Fund program are singing a siren's song.
"So much is dependent on the Greek elections," Kirkegaard said. "The more chaos you have before the elections, the more Greeks will realize that 'maybe we don't want all of this economic chaos'" and cast their vote for the mainstream parties.
Kirkegaard says it will take the kind of chaos created by a Greek exit to push the eurozone into a banking union that includes deposit insurance.
The Pain In Spain
While analysts see that as essential for making the eurozone into a workable monetary union, the hurdles are high. Deposit insurance would be an effective bailout of nations like Spain, which has only just begun to recognize the cost of recapitalizing its banking sector.
Spain said Wednesday it would recapitalize Bankia, its No. 4 bank, to the tune of $11 billion (or 9 billion euros). That followed reports of deposit outflows from Bankia, which was partially nationalized this month.
Among the eurozone's belatedly recognized flaws is that it is ideal for producing bank runs.
The worry among Greeks doesn't seem to be so much that their banks are insolvent, but that Greece will leave the euro and return to the drachma.
Greeks can preserve their existing wealth by preserving their euros. That means taking their money out of the bank because if Greece were to leave the euro, it would almost certainly convert bank deposits and debts into drachmas.
That would enable taxes and incomes denominated in much-depreciated drachmas to make good on debts.
Not surprisingly, the combination of austerity and euro hoarding has landed the economy in an untenable sinkhole and has fueled political instability.