Where Greeks hide their savings

Demonstrators burn an EU flag during a protest in Thessaloniki on November 17, 2011 against austerity measures demanded by the new unity government to persuade its creditors to release bankruptcy-saving loans. Greeks are draining local banks in favor of Swiss accounts, London property and cash stashed in home safes.
Sakis Mitrolidis

ATHENS, Greece — Hardware-store owner Dimitris Andreadakis is brutally honest with customers who inquire about buying safes where they can stash euros.

“I tell them, ‘Don’t do it. It’s dangerous,’” he said, noting that burglaries are rising. “People can come with a gun to your head.”

The risk is worth it to many Greeks. “Most of the people still do it,” he said. Sales have risen 40 percent at his store in the past year.

They’re motivated by what they regard as a more ominous scenario: watching the value of their savings evaporate, in the unlikely but still anxiety-inducing prospect that debt-ridden Greece abandons the euro and returns to the drachma. If that happens, a greatly devalued drachma could put imported goods like food, fuel and electronics out of reach.

To protect their savings, Greeks are pulling their euros out of the bank at an alarming rate. Over the past 21 months, they’ve been sending money to Swiss bank accounts, stuffing safe-deposit boxes, and installing home safes to horde euros.

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In addition to wiring funds to foreign accounts, wealthy Greeks are also buying real estate outside the euro zone, in places like London.

Over the past two months, bank withdrawals spiked over uncertainty about whether the recently fallen government of George Papandreou would be able to avert bankruptcy. Papandreou’s late-October proposal to hold a referendum on a new rescue loan raised the prospect of Greece being forced out of the euro zone.

The referendum was scrapped, but Greeks had to endure nearly a week of political wrangling and uncertainty before it was agreed that Lucas Papademos would replace Papandreou as prime minister.

From the start of 2010 through this September, $75 billion in deposits was withdrawn, according to Bank of Greece statistics. That represents a 23 percent drop in assets — increasing the pressure on already beleaguered banks.

The monthly pace of withdrawals was averaging $3.6 billion, and had leveled off this summer. But in September alone, $7.6 billion was pulled out, and officials estimate October’s figures, due out next week, will be similar.

The financial exodus represents households and corporations, although households account for about 80 percent of the withdrawals.

“There’s heavy fear and heavy anxiety, absolutely,” said Petros Doukas, an investment adviser and former deputy finance minister.

Doukas said a return to the drachma “would be a disaster for both Europe and Greece.” Europe is heavily invested in a Greek recovery, he said, citing bailouts and billions of dollars of Greek bonds purchased by the European Central Bank. He said Europe has failed to solve the problem and has forced an “economic depression” upon Greece.

“The only business that is booming now is home safes and safety doors,” he said, adding that he knows “plenty” of people who have stashed anywhere between $5,000 and $130,000 worth of euros in their homes.

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To ease pressure, the government said on Monday it would double to $83 billion state guarantees to banks, which can leverage the support to raise funds. The Bank of Greece’s special liquidity fund is nearly dry, as Greek lenders have recently borrowed $35 billion from it.

A return to the drachma would greatly benefit wealthy Greeks with savings in cash or hard currency accounts abroad. After devaluation, they could convert their money into drachma and buy up real estate and domestically-produced merchandise at a steep discount.

But Greek and European leaders are vowing to make sure that scenario never plays out.

Papademos made his first official trip to Brussels on Monday, for talks with European Commission leaders about bailout funds. He said remaining in the euro zone is a must.

“This is the only route forward, the only option for this government and for the Greek people,” said Papademos, a former Greek central bank governor.

Greece has been staying afloat with installments of a $150 billion loan announced in May 2010. Without the next installment, worth $11 billion, the country would go broke next month.

Herman Van Rompuy, head of the Eurogroup of finance ministers, said on Monday that the group “should be in a position to agree in its next meeting on the disbursement” of the $11 billion. The meeting is Nov. 29.

A second rescue package, negotiated in late October, calls for an additional $180 billion as well as a 50 percent write-off of Greek debt held by private investors.

Before releasing any funds, however, EU paymasters want written assurance that major political parties will help pass and implement the next bailout. That demand is turning into yet another Greek drama.

Antonis Samaras, leader of the conservative New Democracy party, has so far refused to sign. He has long stated his support for reforms, but wants to renegotiate to add business-friendly measures.

The Bank of Greece bluntly declared in a statement today that Greece's future in the euro would be in jeopardy if leaders cannot accelerate reforms to rebuild credibility in the eyes of international lenders.

"The present juncture is the most critical period in Greece's post-war history," the central bank's statement said. "What is at stake is whether the country is to remain within the euro area in the future."

The options are working with international partners to rebuild Greece's economy, or the second option: "an uncontrolled downward trajectory that would undermine many of the achievements that have been attained in recent decades, drive the country out of the euro area and set Greece's economy, standard of living, society and international standing back many decades."

The bailouts are deeply unpopular with Greeks because they are given on conditions that the government implement austerity measures. Greeks have loudly protested against tax hikes, wage and salary cuts, and looming public-sector layoffs.

The constant uncertainty — whether it’s about Papandreou’s referendum, Samaras’ refusal to sign the austerity pledge or a scheduled Dec. 1 strike by private sector workers — makes Greeks nervous.

London real estate is proving a safe haven for international buyers. The Financial Times reported that wealthy Greeks and Italians — Italy is facing a debt crisis of its own — have nearly doubled their investment in London this year compared to 2010. They’ve spent $640 million so far in 2011.

The prospect of returning to the drachma isn’t the only motivation for wealthy Greeks to move their money. The government has become more aggressive about tracking down tax evaders, cross-checking account activity with salaries.

Greek officials are negotiating with their Swiss counterparts on a proposal to tax Greek-held Swiss accounts that contain undeclared income. They are modeling the plan on Switzerland’s recent agreements with Britain and Germany.

The Swiss firm Helvea in 2009 estimated Greek assets in Switzerland were about $26 billion, with only 1 percent declared. Anti-tax haven watchdogs suspect the total is far greater than that. Greek officials believe another $4 billion or $5 billion has been sent to Swiss accounts in the past two years.

Of course, not every euro withdrawn from Greek banks is going to Switzerland, London, or under the mattress.

Greeks have been tapping their savings for survival purposes. Unemployment has reached 18.4 percent, according to the latest monthly figures. And a new property tax is due soon. It’s being collected through electric bills, with the threat of power shutoffs for delinquents.

“It seems like every month there’s a new tax,” said Savvas Dimitriou, who helps operate his parents’ kiosk after being laid off nine months ago.

Dimitriou noted that customers of all ages are increasingly paying for items with small coins. Inside his kiosk near a north Athens metro station, he collects the 1 cent, 2 cent, and 5 cent coins in small plastic drinking cups. They add up to about $20 per week.

“I haven’t seen that in years,” he said of the reliance on small coins. “Now, we see it every day.”