NEWS that the Greeks are withdrawing money from their banking system in increasing amounts is hardly surprising. A rational Greek with €10,000 euros on deposit, might fear the sum will be worth just €6000 after euro exit, and conversion into drachmas. The temptation is to take the money out and keep it under the mattress, or to take a ferry ride to Italy or Cyprus and deposit the sum there. Those Greeks who have not yet done this may not be naive optimists; they simply need their deposits to meet their day-to-day bills. It is the large savers who have the incentives.
The obvious historical parallel is with Argentina, which adopted a currency board in the 1990s, under which pesos were backed by dollars. This was a way of importing anti-inflationary credibility from America, rather as the euro was a way for other European countries to import German credibility. But keeping up the currency board required a fiscal discipline that proved beyond Argentina, as it has proved beyond Greece. So when the end came, Argentina imposed the corralito, freezing bank accounts and forcing those with dollars to convert their accounts into devalued pesos. The move caused complete outrage among the population, with citizens bashing their pots and pans in street demonstrations, causing the President to resign.
The Argentine crisis demonstrated the sometimes poorly understood principle that a devaluation is a cut in a nation's standard of living. It is akin to taking a wage cut to keep your job. Imports cost more and you get less money for your exports. Nations have preferred devaluation to the kind of painful cost-cuting currently being attempted by the euro zone because it is a subtle way of stiffing your creditors, provided that you have borrowed in your own currency. Greece, like Argentina, has not, so will be forced to default if it does not get aid from outside (or rejects the conditions on which aid is granted).
It will also, surely be forced to follow Argentina in freezing bank accounts and imposing capital controls to stop citizens taking their hoarded euros out of the country; euros may be forcibly stamped as drachma. There will be a black market in which traders prefer accepting proper euros to new-fangled drachma. Moreover Greece has still not balanced its budget; in the absence of overseas finance, it will face a choice between imposing additional austerity anyway or printing new drachma to pay its bills, a stratagem that might eventually lead to rapid inflation. (Sounds a bit like QE, though, doesn't it?)
It will be a terrible mess. Jacob Kirkegaard of the Peterson Insitute suggests that the current Greek bank run is a good thing in that it will bring home to Greek electors the consequence of leaving the euro zone, ahead of the next round of elections. That seems a dangerous thing to wish for, but we are very much into the end game here, rather like September 2008.