Greek bank deposits hit decade low

Capital flight from Greek banks has been going on steadily since Greece’s first bailout package was agreed in 2010. At that time, banks held deposits totalling €220 billion.

The decision by panicked savers to withdraw their money from Greek lenders is the result of the difficult talks - now in the fifth month - between Greece’s left-wing government and its EU and IMF creditors on the remaining €7.2 billion of Greece’s bailout package.

Athens continues to argue that an agreement could be reached by Sunday (31 May), but their optimism has not been reciprocated by their creditors. On Thursday, the International Monetary Fund (IMF) insisted that a deal would require the Greek government to agree to a sizeable economic reform package and to budget surplus targets.

In an interview with a German newspaper on Thursday, IMF chief Christine Lagarde became the latest international figure to warn that a Greek exit from the eurozone was “a possibility". She also warned that a swift compromise deal on the bailout was “very unlikely”.

As a result, the prospect that Alexis Tsipras’ government will be forced to follow Cyprus and become the eurozone’s second country to impose capital controls, is becoming increasingly likely if the country is to avoid a string of its banks collapsing.

Cyprus announced the end of capital controls last month, just over two years after they were introduced in a bid to limit a run on its banks, following a messily agreed €10 billion bailout with the EU in March 2013. Initially, the government set restrictions on bank money transfers and withdrawals, including a daily cash withdrawal limit of €300.

Greece has to make a payment of €1.5 billion to the IMF on 5 June but has pledged that it will continue to honour its debt repayments.

In the absence of a bailout deal, Greece has become increasingly reliant on the ECB which has more than doubled its exposure to Greek debt from €50 billion to €104 billion since December, equivalent to almost two thirds of the country’s annual economic output.

The ECB’s board of directors decided on Wednesday to maintain its emergency liquidity assistance (ELA) scheme, under which Greek banks can borrow without posting collateral from the Greek central bank, at €80.2 billion.