Episode 637: The Last Euro In Greece : Planet Money Greece's monetary system is in crisis right now, and the government is closing the financial pipes. The effects are widespread and weird.

Episode 637: The Last Euro In Greece

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Plumbing is one of those things that you don't really think about. You go to the sink, you turn on the tap, water comes out. You don't know how it got there. There are some pipes under your lawn. You don't know what happens to it when it goes down the drain. You don't wonder about how works until one day you turn the faucet on, and it just goes drip, drip, drip. That is what is happening in Greece right now with the financial pipes. If you go to an ATM, it just goes drip, drip, drip. You can only take out 60 euros a day.


It reminds me of this moment from the U.S. financial crisis back in 2008 when Henry Paulson, who was the Secretary of the Treasury at the time, was going around Washington telling powerful people, listen, if we don't act right now, in a few days people will go to the ATMs, and no money will come out. It's like this economic nightmare scenario from the modern world, and it's where Greece is right now. The country is a few days away from a shutdown of the financial plumbing.


GOLDSTEIN: Hello, and welcome to PLANET MONEY. I'm Jacob Goldstein.

KESTENBAUM: And I'm David Kestenbaum. Today on the show, as the standoff between Greece and the rest of Europe continues, Greece has had to shut down some of the major pipes that move money around. We've been talking to people all over the world about it. The effects are widespread and weird. It's a lesson in the usually invisible things that keep an economy together.


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KESTENBAUM: This all started just over week ago. It was on a Sunday, June 28. The Greek government made an announcement that it was going to shut down parts of the country's financial system. There was the announcement about the 60 euros a day from the ATM and more stuff. They did this all for a simple reason - the Greek banks were about to run out of money.

GOLDSTEIN: This is not the news you want to hear on a nice Sunday afternoon. Miltiades Gkouzouris is a businessman in Greece.

MILTIADES GKOUZOURIS: I was in my car driving towards Athens. We went for a weekend away with the family, and then on the way back, we heard the news on the radio.

GOLDSTEIN: What did you think?

GKOUZOURIS: Oh, my god (laughter) was the first thing that came up to my mind. The second thing was to fill the car with gasoline so we stopped immediately at the first gas station, and we filled it up to the neck and then drove back to Athens. Then we drove a bit around the town, and we saw these large queues of people waiting - standing in front of an ATM in front of banks, and it's still a shocking thing. I mean, I can't believe it's happening.

KESTENBAUM: Miltiades works in international trade and this seemed very, very bad to him. He knew where it all could lead. It starts just being a minor inconvenience. Elena Alexi is a student. She lives across the street from an ATM. She told us she sees lines all day long, though she has come up with a pretty simple solution.

ELENA ALEXI: In the morning or at noon, there are huge, huge, huge - people are waiting there and waiting and waiting.

GOLDSTEIN: So what time do you go to the ATM?

ALEXI: At 2 a.m.

GOLDSTEIN: At 2 in the morning?


GOLDSTEIN: Is there anybody there at 2 in the morning?

ALEXI: No, no, no, just me.

GOLDSTEIN: (Laughter) Elena says she's actually not stockpiling cash. She's just been to the ATM a few times. And I asked her, like, why aren't you taking out more money out of the bank. And she said, I'm afraid that if I do, somebody will come to my apartment and rob me.

KESTENBAUM: There are a bunch of people who are going to the ATMs every day, and you have to have kind of a strategy 'cause there are some ATMs that give out 20 euro notes. There are other ones that give out 50 euro notes. And if you want to get your full 60 euros, you got to go to the one with 20 so you can get three because you can't get two 50s, that would be over the limit.

GOLDSTEIN: Math. Math, yeah.

KESTENBAUM: Hearing about ATMs, I had this question which is how does an economy actually work? How does it even work when people can only take out small amounts of money? There are a couple answers to that, and the first is that there is always cash out there in the economy. So if I buy a cup of coffee, the coffee shop owner now has cash, and she can buy something else with it.

GOLDSTEIN: Another important thing is in Greece, you can still buy things with a debit card or credit card. The new government restrictions don't apply there. Here's Timos Melissaris, an economist in Greece.

TIMOS MELISSARIS: You can go with your credit card, put gasoline, go to the groceries, go to the restaurant, do your life as you have. You know, you want to buy, I don't know, a pair of shoes, you can use your card.

KESTENBAUM: Why keep the electronic money pipe open but shut down the cash pipe? The answer is that the government wants to keep money from leaving the Greek banks so that they don't collapse. If you take cash out, maybe you stick it in your mattress or you take it across the border. But if you pay for something with a credit card or a debit card, that is just electronic money moving from one Greek bank to another Greek bank. It doesn't actually leave the system.

GOLDSTEIN: Now, of course, the ATM limits are a problem for people who don't have credit cards or debit cards. You know, if you're somebody who pays your rent in cash, you have a big problem right now. And Greece, much more than the U.S., is a cash economy.

KESTENBAUM: I talked to this dentist who told me that most of his customers would pay in cash when they came in to get a cavity filled, and he paid his workers in cash. Last week, everyone started coming in with credit cards and debit cards. So the kind of internal pipes for the Greek economy, they are still functioning. It's inconvenient, but it still works.

GOLDSTEIN: But there's this other probably bigger thing, right? The thing the government is trying to do here is stop money from leaving Greek banks. So yeah, you got to stop people from taking all their money out at the ATM. But there's this other thing you have to do. You have to shut off the pipe that leads from Greek banks out to the rest of the world.

KESTENBAUM: That is why, at the same time the government put in restrictions on ATMs, it also put in this other restriction saying you are not allowed to send money out of the country - not to your foreign bank account, not to your family in Spain. And it's particularly bad if you're a businessman importing stuff because to import something, you have to pay for it. You have to send money out of the country.

GOLDSTEIN: So, for example, there is one business on a Greek island that imports raw sponges, like, from the ocean. They import them, and they clean them up, and they resell them abroad - like, these deluxe sponges - and it is a global business. In fact, one of their suppliers is right near our offices - a guy named Nick Stomatakis. He has a warehouse full of sponges right out on Long Island.

KESTENBAUM: Our colleague, Robert Smith, went out there. The guy had five boxes worth $15,000 - $15,000 worth of sponges. They were sitting there, ready to be shipped to a sponge buyer in Greece. That is when Nick got the call from his sponge buyer.

NICK STOMATAKIS: He says that there's nothing I can do at this moment. There's no money. The - I don't have access to my bank account. And he wouldn't be able to do anything.

GOLDSTEIN: Nick has known the buyer a long time. He's built up a lot of trust with him so he thought, maybe I can just send him the sponges now and he'll pay me later.

STOMATAKIS: I offered to him to send it - to send it without any money because I know him for many years. He said there's no way. Even if you ship the sponges to me, we need a couple of thousand dollars - or euros, actually - to get them out of customs, and I cannot access my bank account at this moment.

GOLDSTEIN: It's not just sponges. It's everything. If you're in Greece, you cannot buy stuff from outside Greece. The Greek nation is about to start running out of stuff.

KESTENBAUM: Miltiades, the guy who filled the gas tank up to the neck, works with businesses that import all kinds of things. One of them brings beans into the country - supplies most of the supermarkets there. The guy can't bring in beans right now.

GKOUZOURIS: In a couple of weeks, when his stock is going to run out, then he has a real problem.

GOLDSTEIN: And anyone in Greece who wants beans will also have a problem.

GKOUZOURIS: For sure, yes because you're going to walk into a supermarket and there's going to be only local beans, and the production of beans in Greece is like 12 percent of the total demand - of the total amount we use here, so it's nothing.

KESTENBAUM: Greece, even more than most countries, relies on imports for all kinds of things - animal feed for the farmers animals, Miltiades's clients import air-conditioners, coffee machines, radios. One of his clients makes pasta, but the flour for the pasta comes from Canada and the United States. How long until there are shortages there?

GKOUZOURIS: Well, my personal estimate is about three weeks - three to four weeks if we continue like this, and that's going to be due to the fact that people, in a couple of weeks, will start panicking and buying like crazy from the supermarkets. So that's when, I believe, that the supermarkets will run out of products, and then the system will be really clear and visible to everyone - the system collapse.

KESTENBAUM: Have you stockpiled food?

GKOUZOURIS: Nothing crazy. I mean, I just took care that we have, for three weeks, enough food. And after that, I mean if I see that there is - the situation escalates somehow, then I'm going to just get the family and get out of the country.

GOLDSTEIN: Get out of the country?

GKOUZOURIS: Yeah, yes. I don't want to stay here and experience this.

KESTENBAUM: It's exactly like you're preparing for a huge storm.

GKOUZOURIS: Yes, exactly. Exactly the same. I told my wife, like, take care that the car is completely - is constantly full with gasoline so as for us to be able to reach the borders, if necessary. I mean, it sounds extreme but that's the way we are coping with the situation right now.

KESTENBAUM: It starts with the dripping faucet. It could end with no water anywhere - no more euros in Greek banks.

GOLDSTEIN: There is one place that has plenty of euros - one place that can print euros. That is, of course, the European Central Bank. And part of the job of any central bank is to make sure the financial system does not shut down entirely - is basically to prevent exactly what's happening right now in Greece.

KESTENBAUM: With the press of a button, the ECB could send billions of euros to Greece - could keep the banks running. And, in fact, the ECB was doing that until just a couple weeks ago - a couple weeks ago when talks between Greece and the rest of Europe broke down. Then the ECB said, that's it. We are not lending you any more money.

GOLDSTEIN: And when the ECB said that, the Greek government put these rules in place - these rules that we've been talking about for the whole show - the rules to keep what money was left inside the Greek banks.

KESTENBAUM: But if something doesn't change, the Greek banks are still going to run out of money. Timos Melissaris, the Greek economist we talked to, like a lot of Greeks, he is going to the ATM every day and taking out his 60 euros. And he's done a little math about how long that can go on for.

MELISSARIS: I think we are fine at this rate for one week.

KESTENBAUM: You think the banks only have cash for one more week of this.

MELISSARIS: Yes, it's OK until Sunday.

GOLDSTEIN: Sunday, as it happens, is a big day for Greece. European leaders have said that is the deadline for Greece and Europe to make a deal on whatever package is going to keep Greece going. I mean, of course there have been a million deadlines with Greece, so whether this is a real deadline or not, I don't know.

KESTENBAUM: What's happening in Greece has happened before. In fact, it happened just a couple years ago, not far away. It happened in Cyprus. So we called up Panicos Demetriades. He used to run Cyprus's central bank. Cyprus, like Greece, is on the euro and, like Greece, Cyprus's banks got into real trouble. Cyprus had to put limits on ATM withdrawals, and they had to restrict money flowing out of the country. He told us it was rough.

PANICOS DEMETRIADES: Banks are so integrated - not a single economic transaction can take place without banks. If it's bank notes, credit cards, debit cards - all that is supplied by the banking system. It's not just the loans. It's just the everyday transactions that all firms, all households rely on. So the minute that they are out of the picture, there's complete paralysis, and this is where they are now.

KESTENBAUM: He said Greece's situation is much more serious than Cyprus's was. And his advice to Greece is that you can't live for long without the banks.

DEMETRIADES: I had that discussion with politicians in Cyprus two years ago, and some of them initially - at first they would close the banks, and I explained to them, if we don't get an agreement soon, really, the banks will stay closed. They said to me - some of them said to me - well, you know, let's keep them closed for two months. So what? So the same politicians, a week later, were coming back to me and asking me, how soon can you reopen the banks? How soon can we reopen the banks?

GOLDSTEIN: There are a few ways that the banks in Greece could reopen. Maybe Greece will work out a deal with the Europeans, and the European Central Bank will open the euro spigot again. Then the banks would be able to slowly reopen, the restrictions on the ATM withdrawals would go away, and businesses could, you know, start importing food and medicine and sponges again.

KESTENBAUM: The other way is for Greece to start printing up a new kind of money - bring back the drachma - and then those pieces of paper, they can fill up the banks.


TUNE-YARDS: (Singing) No water in the water fountain.

KESTENBAUM: Let us know what you think. You can send us email - planetmoney@npr.org. You can tweet us at @planetmoney.

GOLDSTEIN: Our show today was produced by Nadia Wilson with an assist from Jess Jiang.

KESTENBAUM: And NPR recommends checking out Alt.Latino. It's a weekly dive into the world of Latin alternative music and culture. You can find it at npr.org and on the NPR One app. I'm David Kestenbaum.

GOLDSTEIN: And I'm Jacob Goldstein. Thanks for listening.


TUNE-YARDS: (Singing) And you say old Molly Hare, whatcha doing there? Nothing much to do when you're going nowhere. Gotcha. We're gonna get the water from your house, your house. Gonna get the water from your house, your house. Gonna get the water from your house, your house. Gonna get the water from your house, your house.

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