Capital Is Fleeing Greece, Run on Banks

The Wall Street Journal reports that capital is fleeing greece as rich Greeks are withdrawing their money from banks and sending it abroad. They fear government scrutiny on their assets and a run on the banks. Such run would occur if the country turns to the I.M.F., according to private bankers and other people with knowledge of the situation, who say that number of customers are asking to move funds out of Greece (mostly to Cyprus, Luxembourg and Switzerland).

The country has long strugggled with underground economy and undeclared and unpaid taxes. The current fiscal situation means that that underground economy will be a prime attack target. The government suspects that 30% of income is not taxed.

"Part of the government's austerity package for this year is a declaration of war on income that hasn't been taxed. While the government hasn't ironed out details, that's prompted fears among wealthy individuals that there will be new taxes on bank accounts".

"Clients of private banks also fear that Greece may be unable able to raise the €54 billion it needs this year to pay back maturing bonds and will therefore have to turn to the IMF for help.
"Some of our clients are concerned about a run on the banks if the IMF gets involved," said another private banker, this one from a foreign bank. "They believe the situation in Greece will get worse before it gets better. There is also very little clarity from the government about its intentions on new tax measures."

"We estimate that €8 billion has moved out of Greece to accounts abroad since December. It's money from bank accounts, stock sales, property sales and other sources," he said, adding that that represented a substantial chunk of the €30 billion under management in Greek's private banks".

Finance Minister George Papaconstantinou urged Greeks with money abroad to repatriate their money and said the capital will be taxed at a 5% rate. He said those who choose to keep their money abroad should declare their deposits and pay a tax of 8% for the first six months.
Thereafter he threatened that Greece will use all laws at its disposal, such as double-taxation agreements, to ask foreign banks for information on Greek account holders.

"For us this is the first step towards taxing all accounts in Greece," said the chief financial officer of a major Greek shipping company. "The line is minimum deposits here and moving all assets abroad,"

"Money will flow back into Greece when the situation returns to normal. This won't happen for at least a year and there is not a lot of trust for the Greek banking system right now," he added.