# Suppose Greece Defaults **URL:** \ **Category:** Factual Questions\ **Created:** [June 18, 2015, 3:41pm UTC](https://boards.straightdope.com/t/suppose-greece-defaults/722859 "2015-06-18T15:41:21Z")\ **Posts on this page:** 14\ **Page:** 3
**Author:** ![Mk\_VII](https://avatars.discourse-cdn.com/v4/letter/m/5f9b8f/32.png) [@Mk\_VII](https://boards.straightdope.com/u/Mk_VII)\ **Post date:** [June 22, 2015, 7:38pm UTC](https://boards.straightdope.com/t/suppose-greece-defaults/722859/41 "2015-06-22T19:38:59Z")
there is already a slow run on the Greek banks, has been going on for months now, and it’s speeding up … ---
**Author:** ![md2000](https://avatars.discourse-cdn.com/v4/letter/m/73ab20/32.png) [@md2000](https://boards.straightdope.com/u/md2000)\ **Post date:** [June 23, 2015, 3:31pm UTC](https://boards.straightdope.com/t/suppose-greece-defaults/722859/42 "2015-06-23T15:31:11Z")
See this: > **[Will Corporate Sovereignty Disputes Lead To Wars One Day?](https://www.techdirt.com/2015/06/23/will-corporate-sovereignty-disputes-lead-to-wars-one-day/)** > > Last August, we wrote about the most egregious corporate sovereignty award (so far): $50 billion against Russia, under a treaty that it never even ratified, in favor of the major shareholders of th… It’s about how Yukos shareholders won a $50-billion judgement against Russia. Ha, ha, big deal, now try to collect… Apparently they’ve been going after and freezing the bank accounts of the embassies, missions to EU etc. Not close to fully collecting, but enough to be a royal pain in the butt for Putin. Greece would find the same problem. anyone trying to do business with Greece would risk having the transaction seized before they got paid, unless it happened inside Greece. ---
**Author:** ![bob\_2](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/bob_2/32/3341_2.png) [@bob\_2](https://boards.straightdope.com/u/bob_2)\ **Post date:** [June 23, 2015, 3:50pm UTC](https://boards.straightdope.com/t/suppose-greece-defaults/722859/43 "2015-06-23T15:50:03Z")
Way back in the 90s - well before the Euro experiment, I worked for a company with a thriving export market in Greece. Because of tax ans other financial controls, our main agent was invoiced and paid for the goods at a very small discount on our list price. Two or three times a year, he came to the UK and toured his suppliers collecting envelopes full of cash. This was considered a normal way of doing business with Greeks. It was not unique to Greece. We shipped a small yacht, packed in a 40’ container, to Saudi Arabia, labelled as ‘catering equipment’. I received a container full of cigars from Cuba as part payment for some goods. I was reliably informed (as they say) that they were re-labelled and shipped to the USA. ---
**Author:** ![clairobscur](https://avatars.discourse-cdn.com/v4/letter/c/839c29/32.png) [@clairobscur](https://boards.straightdope.com/u/clairobscur)\ **Post date:** [June 23, 2015, 10:28pm UTC](https://boards.straightdope.com/t/suppose-greece-defaults/722859/44 "2015-06-23T22:28:15Z")
> [@smiling\_bandit](#): > > I’ve read that private banks and investors have decreased their Greek exposure enormously, and that the bulk of risk now resides with public agencies. Unfortunately, I can’t find good cites on who is actually at risk in the case of default. Yes, private investors renounced to part of the debt, and most of the rest was bought from them by public entities (IMF, European fund, governments). 3/4 of the Greek debt is now owed directly or indrectly, to governments. Main creditors (besides the IMF, around 30 billions) are : -Germany : 56 billions -France : 42 billions -Italy : 37 billions -Spain : 25 billions (with the two latter being themselves very indebted to German and French banks) ---
**Author:** ![puddleglum](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/puddleglum/32/137_2.png) [@puddleglum](https://boards.straightdope.com/u/puddleglum)\ **Post date:** [June 24, 2015, 3:36pm UTC](https://boards.straightdope.com/t/suppose-greece-defaults/722859/45 "2015-06-24T15:36:08Z")
> [@Mk\_VII](#): > > there is already a slow run on the Greek banks, has been going on for months now, and it’s speeding up … This is important because the Greek government does not have the funds to cover the deposits in the banks so if there is a fast motion run on the banks, which likely would happen immediately after the Grexit, the banks would fail. This is the biggest economic problem for Greece. Not being able to borrow in the markets would be bad for the government which would have to balance its budget immediately, but a run on the banks would dry up all commercial credit in Greece for a time. This is why the currency change would likely cause a severe downturn. ---
**Author:** ![Fotheringay-Phipps](https://avatars.discourse-cdn.com/v4/letter/f/d9b06d/32.png) [@Fotheringay-Phipps](https://boards.straightdope.com/u/Fotheringay-Phipps)\ **Post date:** [June 24, 2015, 4:29pm UTC](https://boards.straightdope.com/t/suppose-greece-defaults/722859/46 "2015-06-24T16:29:47Z")
I don’t see that this follows. The biggest part of the reason for the current mini-run on the banks is because of fear that the government would at some point impose capital controls in order to prevent a more serious run on the banks. If there does look to be a more serious run on the banks - as in if they exit the Euro - then this is presumably what will happen, and the banks will survive. ---
**Author:** ![Deeg](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/deeg/32/2955_2.png) [@Deeg](https://boards.straightdope.com/u/Deeg)\ **Post date:** [June 24, 2015, 8:19pm UTC](https://boards.straightdope.com/t/suppose-greece-defaults/722859/47 "2015-06-24T20:19:31Z")
> [@Fotheringay-Phipps](#): > > I don’t see that this follows. > > The biggest part of the reason for the current mini-run on the banks is because of fear that the government would at some point impose capital controls in order to prevent a more serious run on the banks. If there does look to be a more serious run on the banks - as in if they exit the Euro - then this is presumably what will happen, and the banks will survive. I’m no expert but my understanding is that if Greece exits the Euro then all money in Greek banks will be automatically converted at some official exchange rate. If Greece starts to experience hyper inflation (likely) then people will be pulling the money in the banks and trying to exchange the depreciating cash for goods. Then the banks fail. ---
**Author:** ![Fotheringay-Phipps](https://avatars.discourse-cdn.com/v4/letter/f/d9b06d/32.png) [@Fotheringay-Phipps](https://boards.straightdope.com/u/Fotheringay-Phipps)\ **Post date:** [June 24, 2015, 8:45pm UTC](https://boards.straightdope.com/t/suppose-greece-defaults/722859/48 "2015-06-24T20:45:53Z")
People will _want to_ pull their money out the banks etc. The government won’t let them. ---
**Author:** ![Deeg](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/deeg/32/2955_2.png) [@Deeg](https://boards.straightdope.com/u/Deeg)\ **Post date:** [June 24, 2015, 9:02pm UTC](https://boards.straightdope.com/t/suppose-greece-defaults/722859/49 "2015-06-24T21:02:47Z")
But that just escalates the problems, doesn’t it? If people can’t get money out of the bank how do they buy things? If they can’t buy things then the economy tanks. ---
**Author:** ![Alley\_Dweller](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/alley_dweller/32/430_2.png) [@Alley\_Dweller](https://boards.straightdope.com/u/Alley_Dweller)\ **Post date:** [June 24, 2015, 9:03pm UTC](https://boards.straightdope.com/t/suppose-greece-defaults/722859/50 "2015-06-24T21:03:59Z")
So if a typical citizen of Greece is concerned about the banks and the currency, how easy is it for an ordinary person to open a foreign bank account and transfer their money? ---
**Author:** ![Fotheringay-Phipps](https://avatars.discourse-cdn.com/v4/letter/f/d9b06d/32.png) [@Fotheringay-Phipps](https://boards.straightdope.com/u/Fotheringay-Phipps)\ **Post date:** [June 24, 2015, 9:06pm UTC](https://boards.straightdope.com/t/suppose-greece-defaults/722859/51 "2015-06-24T21:06:11Z")
> [@Deeg](#): > > But that just escalates the problems, doesn’t it? If people can’t get money out of the bank how do they buy things? If they can’t buy things then the economy tanks. I’ve not looked into the details of whatever might be proposed, but the general way these controls work is not “no one can take any money out of the bank”. More like “no one can take more than $X per day/week/month/whatever”. I imagine there may be exceptions in certain cases. But in general, the idea is to prevent the type of mass withdrawals that could collapse the banking system rather than forcing everyone to keep all their deposits in the bank. ---
**Author:** ![md2000](https://avatars.discourse-cdn.com/v4/letter/m/73ab20/32.png) [@md2000](https://boards.straightdope.com/u/md2000)\ **Post date:** [June 24, 2015, 10:10pm UTC](https://boards.straightdope.com/t/suppose-greece-defaults/722859/52 "2015-06-24T22:10:42Z")
> [@Alley\_Dweller](#): > > So if a typical citizen of Greece is concerned about the banks and the currency, how easy is it for an ordinary person to open a foreign bank account and transfer their money? That’s essentially pulling their money out of the _Greek_ bank. Either not allowed, or will happen at some sadly high exchange rate after the conversion. Normally, the country’s central bank is the insurance policy for banks that need a temporary cash infusion. Not sure how this works with the Euro, but when the situation is backward, and the government can’t guarantee the banks, things ar worse. the normal way to stop a run is to shut down a few days to cool the panic, then re-open and assure people they will get all their money, thanks to the central bank and the FDIC (G-FDIC?). If the people know the second half won’t apply, at least not in the original Euros, then the run won’t stop. ---
**Author:** ![Deeg](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/deeg/32/2955_2.png) [@Deeg](https://boards.straightdope.com/u/Deeg)\ **Post date:** [June 25, 2015, 3:26am UTC](https://boards.straightdope.com/t/suppose-greece-defaults/722859/53 "2015-06-25T03:26:51Z")
> [@Fotheringay-Phipps](#): > > I’ve not looked into the details of whatever might be proposed, but the general way these controls work is not “no one can take any money out of the bank”. More like “no one can take more than $X per day/week/month/whatever”. I imagine there may be exceptions in certain cases. But in general, the idea is to prevent the type of mass withdrawals that could collapse the banking system rather than forcing everyone to keep all their deposits in the bank. That will likely prolong the collapse but I don’t think it can prevent it. It still puts a choke-hold on the economy at the very time it can’t afford it. People will continue to take out as much money as they can until the bank fails. I think this situation (a country peacefully pulling its currency out of larger, more stable currency) is unique in history so it’s largely speculation on my part. ---
**Author:** ![md2000](https://avatars.discourse-cdn.com/v4/letter/m/73ab20/32.png) [@md2000](https://boards.straightdope.com/u/md2000)\ **Post date:** [June 25, 2015, 6:00am UTC](https://boards.straightdope.com/t/suppose-greece-defaults/722859/54 "2015-06-25T06:00:50Z")
> [@Fotheringay-Phipps](#): > > I’ve not looked into the details of whatever might be proposed, but the general way these controls work is not “no one can take any money out of the bank”. More like “no one can take more than $X per day/week/month/whatever”. I imagine there may be exceptions in certain cases. But in general, the idea is to prevent the type of mass withdrawals that could collapse the banking system rather than forcing everyone to keep all their deposits in the bank. Think about it? What do people want to do? They know if some deal is not reached, the government will likely convert all bank accounts from Euros to Drachmas (or IOU’s), which will then depreciate rapidly against the Euro - because the government spends more than it takes in, and when it owns the currency, it can print too much. SO they want to get their money out of that risk - either withdraw it and hold it in Euro notes, or transfer it out of the country into foreign banks. What does the government want? They don’t want any remaining Euros to leave the banks, and be hoarded in mattresses, nor do they want the money outside the country. Banks with no deposits can’t lend, people can’t get credit, home sales and car sales and other bank-dependent transactions stop. Plus, those banks also lend to the government, cash civil service and pension cheques, so they need to be running. Money abroad does nothing for Greece. Money hoarded in anticipation times will be tougher, is money not spent and causes the effect it anticipates. So what would you do in the government’s shoes? Governments all over the world have done one trick after another, and generally, the black market corrected these measures. No currency exports - taking more than $X cash abroad or transferring to foreign banks; no foreign bank accounts allowed. (Britain did this after the war). Limit cash withdrawals to X per week. Seize X% of all savings accounts (IIRC Argentina did this one). Pass laws setting fixed (unrealistic) exchange rates, or have one rate for businesses and another one for the public. Pass laws requiring businesses to accept warrants at par value. Like Venezuela, wage and price controls - pass laws requiring businesses to sell at certain prices, penalizing hoarding by businesses or consumers. A tax on remittances of hard currency relatives send from abroad. You name it, the government is likely to do it. Things could get a lot worse before they get better. On the plus side, devaluation of the Drachma will re-adjust the oversized pensions and salaries to more realistic levels. That E50,000 pension will become a Dr50,000 pension, or E5,000. Meanwhile tourists will still pay almost as much as before in Euros for a holiday in Greece, so some businesses will do very well, with wages and locally made supplies priced much lower, but revenue still high. [Previous page](https://boards.straightdope.com/t/suppose-greece-defaults/722859.md?page=2)