The past several weeks have highlighted the importance of maintaining bank accounts in a safe jurisdiction.
Here are some of the differences between how the US and Greek banking system and economies operate.
Greece has depositor insurance up to €100,000 for banks that collapse as a result of a bank run. This sounds great for depositors but the insurance fund only has 3 billion euros to pay out to depositors. This will not be nearly enough to cover depositors in the event of a Greek banking system collapse (which seems likely in the next few days). The US government offers depositors insurance of up to $250,000. No depositors in US banks have lost principal since the Great Depression.
No ability to devalue currency
One of the reasons Greece’s problems have spiraled out of control is a problem inherent to being in the Eurozone. Greece has benefitted from cheap debt but it has lost its ability to use monetary policy to extricate itself from a negative economic cycle. Countries with weak economies and high unemployment, like Greece, tend to print more money to devalue their currency. This can have a double benefit for the economy. The first benefit is cheap exports; with a devalued currency exports become cheaper for other countries to buy. The second benefit is attraction of investment. Investments look much more attractive when a foreign currency goes further in a weakened economy. Cheap exports and more foreign investment can help the correct the cycle of high unemployment and a weak economy. Because Greece is in the Eurozone it does not have this ability for market self correction. Greek exports remain expensive and its soft economy still fails to attract investment.
The US does not have this problem with the economy. During the 2008 crisis the value of the dollar went down against almost every major currency. This helped boost exports and attract foreign investment. This was largely responsible for the resilient recovery of the US economy from the “Great Recession.”.
Lack of competitive markets
The recent vote in Greece asked citizens to choose between austerity and possibly exiting the Eurozone. This vote fails to address one of the larger issues hanging over Greece’s banking system and economy. Greece is a heavily bureaucratic and cartelized economy. It is very hard for competition to enter in a variety of different parts of the economy. Highly protected industrustries, either through regulation or bureaucracy, keep Greece from being a dynamic economy. Greece needs to reform its labor, tax compliance, and capital markets before it can expect to see any improvement in the economy. This is not as true of the US economy, which remains nimble in spite of its vast size through its market driven values.
Safety with a US bank account
However the fortunes of Greece sort out, the characteristics of its problems apply to the economies of many countries. In the midst of this, the United States offers a safer haven for your resources. It is safe to generalize that any business, and especially one active in the American market, will benefit by having at least one account in a US bank.