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It Might Be Time to Panic About Greece

Megan McArdle is a Bloomberg View columnist. She wrote for the Daily Beast, Newsweek, the Atlantic and the Economist and founded the blog Asymmetrical Information. She is the author of "“The Up Side of Down: Why Failing Well Is the Key to Success.”
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Here's something that doesn't exactly cheer the soul: Greece's Eurobank Ergasias and Alpha Bank "have requested access to an emergency cash facility run by the central bank. Both said the moves were only a precaution and that neither faced an immediate funding crunch. People familiar with the matter said the banks are seeking a few billion euros between them. The move has again evoked fears over the stability of Greece’s banking system as the country lurches through another period of political uncertainty."

It is especially cheerless when combined with two sentences from yours truly, penned a little over a week ago: "Exit may become a self-fulfilling prophecy. If people think it will happen, they will rush to withdraw their money from the financial system. The resulting collapse will force Germany to put more money in on easier terms, or Greece to leave the euro."

I rush to note that we are hardly in the end days yet; bank officials told the Wall Street Journal that this was only a precautionary move, and they were not facing an immediate cash crunch. One is always pleased to hear that bankers are being cautious. But the Journal also reports that $3 billion has fled Greek banks over the last two months, and there are rumors that other European banks are reining in their lending to their Hellenic counterparts. Which means that, unfortunately, their caution seems more than warranted.

As Adam Smith famously noted, "There is a lot of ruin in a nation," and Greece may well pull through. But in my last post, I told readers to watch for signs of broadening panic, and this is just such a sign. So I thought it was worth pointing out.

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To contact the author on this story:
Megan McArdle at mmcardle3@bloomberg.net

To contact the editor on this story:
Brooke Sample at bsample1@bloomberg.net