Citing a conversation he had with Greek Central Bank Governor George Provopoulos, Papoulias said "that the strength of banks is very weak right now."
Greek President Karolos Papoulias said that 900m euros were recently withdrawn from Greek banks.
Do you think a full-fledged bank run in Greece is likely within the next few weeks?
It could well happen. What's been happening is you had two years of small-scale, gradual bank runs which have substantially reduced the amount of money in Greek bank accounts.
But until now, the average net withdrawals was about 2-3bn euros a month. People were pulling this money out, holding it in cash, buying property and mainly taking it outside of Greece. …
That has now accelerated probably to 3-4 times that rate, or so it seems.
Is Greece's banking system headed towards collapse?
Earlier this week, Greek President Karolos Papoulias said that about 800m euros ($1.01bn) were recently withdrawn from Greek banks. "The strength of banks is very weak right now," said Papoulias, according to the Wall Street Journal.
The withdrawals follow the news that Greece's political parties were unable to form a government after elections held on May 6, leading to the installation of a caretaker administration on Thursday. Another round of elections to be held in June may result in a government opposed to Greece's financial bailout by the European Union and International Monetary Fund.
If Greece does not adhere to the bailout's conditions, the country may be forced to leave the euro, say analysts. Hence some Greeks' desire to withdraw their deposits in euros, before the introduction of a new currency likely to be worth less.
Al Jazeera's Sam Bollier spoke with Allister Heath, the editor of London-based business newspaper City AM, about the likelihood of a bank run in Greece and the possible consequences.
Sam Bollier: Do you think a full-fledged bank run in Greece is likely within the next few weeks?
Allister Heath: It could well happen. What's been happening is you had two years of small-scale, gradual bank runs which have substantially reduced the amount of money in Greek bank accounts.
The [country's] average net withdrawals totalled about 2-3bn euros a month. People were pulling this money out, holding it in cash, buying property and mainly taking it outside of Greece. …
That has now accelerated probably to three to four times that rate, or so it seems. We don't have the latest data, but it does seem that the rate at which the run is taking place is getting close to out of control.
We're not out of control yet. There's not yet queues in front of banks, as far as anyone can tell. But I'm very concerned that there may well be a full-scale run on Greek banks during the next month.
SB: Who do you think has been doing all this withdrawing in recent weeks?
AH: I think the high net worth Greeks have already pulled most of it out … I think what's happening here is more you're going down the income scale.
This is a guess … but I would suspect that it's becoming a more mainstream phenomenon now to try and pull out money from banks.
SB: You've written that you're surprised by the amount of deposits remaining in Greek bank accounts, given the fact that, if Greece leaves the euro, people's deposits will probably become worth substantially less. Why do you think that is?
AH: I don't fully know the answer to that question. I suspect [Greeks] are being told by politicians that they can have their cake and eat it, and they believe that. … Most politicians in Greece seem to say they want to stay in the euro; so do most Greeks.
But the same politicians say they can stay in the euro but simultaneously not pay back their debts, or renege on promises, or stop the austerity packages, and so on. And in a way they think they can engage in a game of brinksmanship with the European authorities and say to them: 'Look, you won't dare cut off the cash, because you're too scared of the contagion and the overall consequences of a Greek default and withdrawal from the euro.' …
So that's why I think people haven't pulled out their money: I think for some reason they still believe Greece will stay in the euro.
Of course you have to leave some cash in the bank account to operate. You have to have some cash in the bank account to pay your mortgage, to pay your credit card bills. Companies need to have some money in bank accounts to pay their staff.
SB: If Greece does introduce a new currency, what measures could it take to stave off potential bank runs?
AH: I suspect by then it'll be a bit late. But what they will do is they'll declare a bank holiday, and just shut all the banks. If you shut all the banks then obviously no one can pull out money from the bank accounts.
They can impose capital controls: they can ban anyone from taking money out of Greece. They can even impose border controls … they could impose physical controls on taking out gold, for example.
There are lots of these measures, of course, in violation of the rules of European Union membership. You're not allowed to impose capital controls or do things like that. I suspect they'll just do it anyway because the whole thing will be crumbling around them. I suspect the EU won't want to throw Greece out of the EU itself, so I suspect they'll turn a blind eye to that, on the basis of emergency measures.
SB: In the event of a serious bank run, is it likely that the European Central Bank (ECB) would step in to provide liquidity to troubled banks?
AH: The problem is they would effectively be providing liquidity against no collateral, because the banks would just be emptied out. … They'd be providing liquidity knowing full well that the chances of them getting any money back were constantly falling. ...
If [Greece] elects a quasi-Communist party that basically completely rejects austerity and, more to the point, refuses to pay back loans to foreign governments and so on, then why would the EU continue to provide them with cash, and why would the ECB continue to provide liquidity to Greek banks?
What would then happen is Greece would literally run out of euros in July. It wouldn't be able to pay pensioners or public-sector workers. It would not be able to recapitalise banks. Therefore it would have no choice but to quit the euro and create its own currency.
Allister Heath is the editor of City AM, a daily business newspaper based in London.
Source: Al Jazeera