Greek Bank Withdrawals Accelerated Amid Political Instability

Greek political instability spurred an acceleration of bank withdrawals, with the decline stemmed by the appointment of a new government this month.

Greek banks saw an outflow in deposits of about 13 billion euros to 14 billion euros ($18.7 billion) in the two months to the end of October, said George Provopoulos, the head of the central bank and a member of the European Central Bank Governing Council. Deposits totaled 183.2 billion euros at the end of September.

“One could say these two, two and a half months have been the worst for deposits since the start of the crisis,” Provopoulos told lawmakers in Athens today. He said the decline continued in early November and has since stabilized.

The comments indicate that as much as 8.6 billion euros moved out of the Greek banking system in October alone, since the central bank had reported a 5.4 billion-euro outflow in September. The September figure was the biggest one-month decline since Greece joined the euro as doubts surfaced about the country’s ability to meet the terms of an EU-led bailout.

Prime Minister Lucas Papademos, a former vice president of the European Central Bank and former head of the Greek central bank, was sworn in on Nov. 11, after former Prime Minister George Papandreou’s bid to hold a referendum on the second financing package angered EU leaders, leading to a freeze on payments and throwing markets into disarray.

Provopoulos said the economy’s contraction this year was tilted toward 6 percent, rather than the 5.5 percent figure in the central bank’s interim monetary policy report last week. The figure could be 5.8 percent, Provopoulos said.

The central bank warned last week that Greece has one last chance to reshape its economy and stay in the euro region by sticking to pledges to implement budget cuts.

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