Is Greece planning a Cyprus-like haircut of bank deposits regardless of today’s referendum?

All eyes in the currency trading and financial world remain riveted today on Greece, and the country’s referendum on whether or not to accept the bailout conditions proposed jointly by the European Commission (EC), the International Monetary Fund (IMF) and the European Central Bank (ECB) .

However regardless of the referendum’s outcome and the fate of Greek Prime Minister Alexis Tsipras, one thing is still certain – on the morning after, Greece is still going to owe a lot of money to outside lenders, and is still far from fixing its economic problems and the financial bleeding which led to the current conundrum.

greek_flagSome leading media outlets, including the Financial Times, are reporting that Greek banks are preparing contingency plans for a potential ‘haircut’ of all bank deposits in Greece, similar to the ‘bail-in’ of bank depositors in Cyprus in 2013, as part of the EU bailout’s of the island nation’s banks.

Ironically, Cyprus’ leading banks – including the Bank of Cyprus and Laiki Bank – got into trouble mainly by making real-estate related loans into Greece, which went bad in large numbers.

The difference, however, between the Cyprus haircut and that being proposed in Greece is whom will be hit. The Cyprus deposits-grab by the government only hit deposits above €100,000. That spared many small ‘mom and pop’ local depositors (whose deposits were well below €100,000), and hit many of the larger foreign depositors who had been using Cyprus as a banking haven.

The proposed Greek grab will be different, and (if implemented) will hit a much wider swath of Greek society. As proposed, the Greece bank haircut would affect all deposits above just €8,000.

Why the difference?

In part, because many of the larger bank deposits have already left the country over the past few months, in anticipation of this very kind of action and to avoid capital controls which are already in place in Greece.

The haircut seems to fly in the face of Tsipras’ platform of avoiding any near or long term pain to the citizens of Greece from any solution to the current problems. But as we wrote above, with no quick fix in store for Greece’s financial problems – whatever the results of today’s referendum – Greece still faces some serious financial problems tomorrow.

In the meantime, Greek banks have been closed since last Monday. ATM machines are doling out cash to a maximum of €60 per depositor per day. in the absence of a solution to the current crisis, it is reasonable to assume that Greek banks – which so far have not had any solvency problems – would face some serious problems if the current limitations of the withdrawal and movement of cash were removed.

Stay tuned to LeapRate as we continue to provide unique coverage of the Greece referendum and – just as important – the ‘day after’.

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