Financial Markets Yawn but Greeks Rush to Pull Money Out of Their Banks

02/17/2015 5:06 pm EST

Focus: GLOBAL

Jim Jubak

Founder and Editor, JubakPicks.com

Since the collapse of talks at yesterday’s meeting of the EuroGroup finance ministers, both sides have dug in deeper to their positions, and MoneyShow’s Jim Jubak thinks the posturing may go down to the Friday deadline.

European—and indeed global—financial markets continue to show 1) that they believe the Greek debt crisis will be settled this week or 2) that they don’t think the possibility of a Greek default and a Greek exit from the euro is any big deal.

As of the close today, February 17, the French CAC index was up 0.04%, the German DAX was off 0.25%, and the Spanish IBEX 35 was ahead 0.08%. The euro itself was trading at $1.1413, slightly ahead of the $1.1355 of yesterday’s close.

Greek banks and bank depositors, however, are demonstrating a very different reaction. The country’s banks have asked the Greek central bank to ask for additional emergency cash at Wednesday’s meeting of the European Central Bank governing council. The central bank raised its cap on the cash available to Greek banks through its Emergency Liquidity Assistance program to 65 billion euros but Greek banks have already used 57.5 billion.

Greek banks need the cash because depositors have continued to pull money out of their accounts. Withdrawals in January and early February have totaled 15 billion euros, according to Greek newspaper Kathimerini. Doing the math, that says that total deposits have dropped to 145 billion euros from 160 billion euros at the end of 2014. Every dollar fleeing the banking system gives Greek banks that much less collateral to use to borrow from the Greek central bank and the European Central Bank.

Since the collapse of talks at yesterday’s meeting of the EuroGroup finance ministers, both sides have dug in to their positions with Germany demanding that Greece agree to honor the austerity promises in the current bailout program before any discussion of bridge financing and Greece refusing to accept the current bailout program as the basis for discussions.

Tomorrow’s meeting of the European Central Bank will provide an indicator of whether both sides are willing to compromise or just intend to dig in deeper. Greece could indeed decide not to ask for a higher cap under the Emergency Liquidity Assistance program or the European Central Bank, if asked, could say no. The next formal meeting of the governing council isn’t until March—so this is the last meeting that could raise the cap—although the European Central Bank could agree to raise the cap without a formal meeting of the council.

It certainly looks like the posturing will go down to the Friday deadline. (Although, this being the EuroZone, it’s certainly possible that the deadline will be extended for a few days.) And, as I pushed this post out the door, the informed rumor was that Greece was prepared to ask for a 6-month extension of the current bailout program. The devil—and approval or defeat—will be in the details.

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