A week of capital controls apparently wasn’t painful enough to compel the majority of Greeks to concede to more austerity. In the run up to the referendum, preliminary polls had the “no” votes losing ground to the “yes” camp, a situation which quite a few commentators suggested was the direct result of Greeks’ willingness to fold if it meant regaining access to their cash and taking the prospect of a depositor bail-in off the table.

As it turns out, polling companies, to use Soc Gen’s dry humor, “are of little use” and should probably be sold “if listed anywhere”, because when the actual votes were cast, it was no contest — “Oxi” was the resounding battle cry heard loud and clear in the streets of Athens on Sunday evening.

It seems likely that most Greeks who cast a “no” ballot realized that “yes” offered the quickest path out of capital controls. As such, it appears that some two-thirds of the Greek populace is prepared to stick it out, although (former) FinMin Yanis Varoufakis’ contention that the banks would open on Tuesday (that’s already been postponed) may have led some voters to underestimate how difficult it is to lift restrictions once they’re imposed.

Confidence and trust in the government’s negotiating stance is one thing, but suffering through a depositor haircut is quite another and with a bail-in looking increasingly likely by the day, we thought it an opportune time to recap the Cyprus experience which visually, looks like this:

For those who require a slightly more in depth recap, we bring you the following from Goldman:

Capital controls in Cyprus took >2 years to reverse


Cypriot authorities implemented capital controls on March 27, 2013 in order to safeguard the stability of its financial system. These measures were gradually eased and finally lifted on April 6, 2015, over two years after initially implemented.  

  • The introduction of capital controls occurred in the context of the rescue package agreed between Cyprus and the Troika, first announced on March 17, 2013. The program included measures necessary to recapitalize the local banking sector.  
  • As part of the program, Cyprus agreed to introduce a one-off tax on deposits. The initial proposal suggested a levy of 6.7% on deposit amounts of < €100k and a 9.9% tax on deposit amounts > €100k. Given disagreements over losses on small retail deposits, the scheme was revised. The final agreement applied a 47.5% haircut to all balances >€100k and incorporated a bail-in of equity holders, bond holders, and large deposits at Laiki Bank. 

We can only hope that Greeks have not placed too much faith in the idea that things will return to normal in the banking sector anytime soon. A crisis of confidence is nearly impossible to reverse in the short-term and if there is any place on earth where confidence is in short supply, it’s at Greek banks.

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