The Devalued Greek Currency Has Already Arrived. It's the Euro

Euro deposits in Greece's financial institutions may come to have less value than cash if banks stay closed much longer

People wait in line at an automated teller machine (ATM) at a Piraeus Bank SA bank branch in Athens, Greece, on Monday, June 29, 2015.

People wait in line at an automated teller machine (ATM) at a Piraeus Bank SA bank branch in Athens, Greece, on Monday, June 29, 2015.

Photographer: Simon Dawson/Bloomberg

Customers at Iannis’s gas station in an industrial area in southeast Athens may be disappointed if they try to pay with plastic.

He’s set a limit of 50 euros ($55) for credit and debit cards, not enough for a full tank for many cars. “That’s all we are taking,” he said, the blue Aegean Sea visible at the bottom of the hill. There’s no limit on cash.

Iannis, who gave only one name, may be the face of a de facto devaluation in Greece, even before a referendum Sunday that could determine its future in the euro. Cash is harder and harder to come by, with daily withdrawals limited to 60 euros. There are so many curbs on credit cards, international transfers or other purchases that euros in the bank may literally become less valuable than cash, said Manolis Galenianos, a professor of economics at Royal Holloway, University of London.

“For stores that only accept cash, which is common in Greece, or for transactions outside Greece, one’s bank deposits are useless,” Galenianos said. “The value of a euro in the bank is strictly below the value of a euro in one’s pocket. If this bank holiday continues, we could see a situation where bank deposits are exchanged for cash at a discount.”

Greece’s government closed banks and limited withdrawals on June 28, following the collapse of talks with creditors and the decision of the European Central Bank not to extend further assistance to Greek lenders. Payments or transfers of money abroad from Greek bank accounts were banned altogether.

According to the government decree on capital controls, the forced bank holiday is set to run until July 6. Even after that, restrictions on ATM withdrawals and payments outside the country are likely to remain in place. Cyprus, the only other euro-area state to have ever imposed capital controls, kept them in place for two years.

In northeast Athens, Alexander Popakonstantino, 42, has started offering a 50 per cent discount for customers who pay with cash in his clothes shop. 

"We don't have cash,'' he said. ``We need cash, that's the problem." Asked if holding cash was a security issue, he said no: "There isn't really much to steal anyway."

Greek banks won't reopen until there’s an agreement with creditors, according to Michael Michaelides, a rates strategist at Royal Bank of Scotland. “There is of course that risk that banks become insolvent before the deal is there to reopen, especially in the event of a no vote,” Michaelides said in an e-mail. In this case, the banks could only re-open with an alternative currency to restore liquidity.

Uncertainty over Greece’s place in the currency bloc means that receiving payments via web-banking or debit cards directly to a Greek account also involves risk.

“As long as a deal with creditors remains elusive, people who accept payments for goods in Greek accounts also accept risk,” said Andreas Antoniades, senior lecturer in global political economy at the University of Sussex. “Risk is being traded.”

-- With assistance from Rebecca Christie in Brussels, Matthew Campbell in London and Paul Tugwell in Athens

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