The IMF Reports on the Slow Motion Bank Run in Greece

In a newly released report, the IMF says:

The steady outflows – a major deposit run has been avoided – appear driven by private sector dissaving as well as by capital flight to safe-havens outside of Greece (the latter representing about a quarter of total withdrawals).... 

The Eurosystem has stepped into the breach and by end-2011 had provided nearly €130bn (or 60 per cent of GDP) in support. Initial heavy reliance on Eurosystem liquidity support (with Eurosystem exposure peaking at €103bn in mid-2011) is gradually being replaced by Emergency Liquidity Assistance (ELA) from the Bank of Greece (BoG). The switch to ELA is imposing additional costs on banks, as the interest rate and fees are higher than under the ECB window, but this remains an inexpensive form of financing for banks.

If this slow motion run continues, the European Central Bank and eurozone lender swill have to either pump in more money , even without a new government in place, or stop the money printing, which would force Greece to leave the eurozone and start printing drachma. Of course, if things occur too suddenly, before Greece is prepared to print, there is a chance a free market money could develop alongside the euros left in Greece, at least for the short-term. It would be anybody's guess as to what that money would be. The free market can get pretty creative.