Friday, January 20, 2012

Europe: the run on the banks intensifies

It seems that depositors in the weaker economies in the Eurozone are finally waking up to the fact that economic reality is about to slap them in the face like a flopping wet fish. The Telegraph reports:

Italian and Spanish banks suffered the largest outflows of depositors' money last year as customer fears over the safety of money held at Southern European lenders escalated.

More than €100bn (£83bn) of deposits were withdrawn in the 11 months to the end of November last year, with €61bn taken out of Italian banks, the largest overall outflow of money from any eurozone banking system, according to Credit Suisse.

Spanish banks suffered the second largest withdrawals at €48bn, equal to just under 3pc of total Spanish bank deposits, while Greek banks recorded the largest percentage fall in deposits with €42bn withdrawn, equal to a fifth of the country's total deposit base.

Together Greek, Portuguese, Irish, Spanish and Italian banks suffered net withdrawals totalling close to €150bn, exacerbating their already considerable funding problems.

The peripheral country outflows were in marked contrast to the eurozone's two largest banking markets. French banks recorded deposit inflows worth €132bn, increasing France's deposit base by 7pc to €1.9 trillion.

German banks reported the second best inflows at €97bn, increasing the country's deposit base to more than €3 trillion reflecting the perceived strength of the German economy.

There's more at the link.

This is a totally logical and predictable development, of course. Depositors in the weaker Eurozone economies know that there's a real possibility that their countries may be forced out of the Euro bloc. If that happens, those nations will have to re-establish the currencies they abandoned to join the Euro, such as the Greek drachma, the Spanish peseta, the Italian lira, the Portuguese escudo or the Irish pound. Trouble is, if that happens, no-one can predict the exchange rate that will prevail between those currencies and the Euro (or other international currencies). Furthermore, the governments concerned may establish an artificially low rate of conversion, meaning that their citizens may wake up one morning unable to withdraw their money in Euros, but only in the new currency at a government-dictated rate of exchange - which will almost certainly cut deeply into the former value (i.e. buying power) of their savings.

Under the circumstances, it's no wonder that those who can read the writing on the wall are pulling their Euros out of weaker nations as quickly as possible, and depositing it in banks and accounts in stronger Eurozone countries. That way, if their country does drop out of the Euro, they can either keep their money outside its borders, preventing their government from imposing a confiscatory rate of exchange upon them, or bring it back in the form of other currencies such as the US dollar or the British pound, which will probably be worth more of their country's replacement currency. (Note how much money flowed from the Eurozone into US banks and financial instruments in the second half of last year. It came here for the same reason it's fleeing the weaker Eurozone economies. It's not that overseas investors think that the dollar's a safe haven - it's just that, even with all its many weaknesses and problems, the US economy and the dollar appear safer to them than their own economies and the Euro!)

Yes, the light at the end of the Eurozone tunnel is, indeed, an oncoming train.



Mikael said...

If I had enough money to think about moving it into another currency, I'd be looking hard at canadian and australian dollars. Maybe even asian currencies, but they're likely to go down the tubes when the euro and dollar go(singapore dollars, thai bath, etc).

Even safe havens such as gold are unlikely to keep their value if the global economy crashes.

Guns are probably the safest investment, but problematic for the rich trying to save their hoards(where are you going to store hundreds of thousands of guns?)

Anonymous said...

"Guns are probably the safest investment, but problematic for the rich trying to save their hoards(where are you going to store hundreds of thousands of guns?)"

Mexico, of course!


Anonymous said...

The EU gov in Belgium just came out with a new regulation that limits the amount that be can withdraw from any bank account to
5K euro per transaction.