The outflow of bank deposits was stemmed in August as a result of the capital controls introduced on June 28. Data from the Bank of Greece show that balances had stabilized at 123 billion euros by mid-August, up from 122 billion euros at the end of July.
The flight of deposits from Greek banks that began when early elections were announced last December gained speed and reached unsustainable levels in the buildup to the July 5 referendum. Capital controls were introduced to stem the outflow and stabilize the banking system.
Bank officials say that the stabilization of deposits is still far from normal. The 60-euro cap on daily cash withdrawals – 420 euros per week – helps to control the outflow of deposits from the banks, but the liquidity in the system is insufficient to meet the real needs of the economy.
Given that the amount import companies are allowed to send abroad via banks – 5 million euros per bank per day – combined with emergency liquidity totaling 187 million euros that has been made available to the firms in two tranches, is enough to cover 30 percent of the needs of Greek enterprises, the return to normality seems a pipe dream at present.
The restoration of trust through the recapitalization of banks by the end of the year and ensuring political stability are considered key to a return to normal conditions. A first step would be to increase the coverage of the required daily limit of the banking sector – around 150 million euros a day – with small liquidity injections, either by increasing the daily limit per bank or through emergency approvals of cumulative amounts.
According to estimates by the banking sector, capital controls will be gradually eased in the coming six months.
The stemming of deposit outflows is largely due to the peak tourist season, which brought an inflow of new money into the market. However, this trend will end with the tourist season, while at the same time the autumn tax obligations are expected to reduce liquidity in the system.
The next installment of income tax by individuals is due at the end of August, while the new ENFIA property tax is payable in October and is expected to remove 2.6 billion euros from the system.