The Greek Modest Proposal To Savers: Please Bring Your Cash Home
Earlier today we reported that after a €2.5 billion outflow in March, Greek deposits have hit their lowest level since 2005 and have fallen by some €27 billion (or 16%) since December. A few other rather disconcerting data points: although the Greek banking system only comprises a little over 1% of eurozone assets, it accounts for nearly a fifth of ECB facility usage while nearly a third of Greek banking assets are now funded by the central bank.
In the midst of this decidedly untenable situation, and as Tsipras does his best to shakedown municipalities and pension funds for excess cash (“Where’s the money Lebowski?!), FinMin Varoufakis has a new proposal for all Greeks who have taken the very rational step of moving their cash elsewhere to avoid being Cyprus’d: bring your money back and we won’t tax it at 50%. Here’s more from Reuters:
Greece is to allow money held abroad by its taxpayers to be declared without penalty and taxed at a discount rate, a move to help overcome a cash crunch threatening the country with bankruptcy."The government will table a bill to allow citizens to voluntarily declare their deposits abroad," Finance Minister Yanis Varoufakis told reporters after meeting Swiss officials in Athens.Greeks have sent billions of euros abroad since the debt crisis exploded in 2010, fearing that the country may crash out of the euro zone. The deposit flight has strained its banks which have become dependent on central bank funding for liquidity.A portion of the money has fled to Swiss banks.Under the planned law, the deposits may be taxed at a rate of 15 to 20 percent, a senior finance ministry official said, an incentive for those who have sent money abroad but have not reported it as income to Greek tax authorities.Depositors who have evaded reporting incomes would otherwise face a 46 percent tax rate and 46 percent in penalties if caught.Varoufakis said that once the bill is passed by parliament, a political agreement will be signed between Greece and Swiss authorities to exchange information on Greek deposits held in Swiss banks.
This may sound like a good idea in principle, but we’re not entirely sure why this represents a compelling value proposition for those who are storing their euros in the safe confines of Swiss bank accounts. That is, why would anyone want to bring cash back to Greece and pay a 20% tax only to face the very real chance that those deposits will be converted to drachma or some equally worthless scrip in the not-so-distant future?
Here's what UBS had to say on the subject of redenomination risk earlier this month (we think it applies here):
Even if a depositor thinks that there is only a 1% chance their country will exit the Euro, why take a 1% chance that your life savings are forcibly converted into a perceived worthless currency if by acting quickly (and withdrawing deposits) one can have 100% certainty that your life savings remain in Euros?
As a reminder, here is the deposit situation in Greece:
Katia Porzecanski