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Crumbling (Euro)land



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In the middle of a long, predictably bleak, but well worth reading piece on the euro zone’s woes, John Mauldin includes this striking quotation:

The entire issue is made worse by the fact that there is a very real run on Greek banks. The FT reports that €5 billion has left Greek banks in just the last two weeks, some 3% of the total remaining deposits, by my calculation. As Mervyn King, the governor of the Bank of England noted during the Northern Rock crisis, “Once a bank run has started, it is rational to join in.”

Indeed it is.

It was, of course, a massive run on the banks that broke the Argentinian currency peg in 2001.

And if you were a depositor with a Greek bank, or, for that matter, given current headlines, a Spanish bank, what would you do?

Probably much what Giorgos Vassilakis has been doing, but more quickly:

Retired Athens hospital worker Giorgos Vassilakis will today make the same journey to his bank in central Athens to make a withdrawal. The 65-year-old has been doing the same thing daily, steadily depleting his own savings pile since the country’s cataclysmic May 6 general election. He is busy building up a reserve of cash at home to protect himself should the worst happens and the country falls out of the euro…Economists have dubbed the collected effect of worried Greeks taking money out of savings accounts a “bank jog,” not quite a run but still a deliberate trend in the same direction.

In yet another article to be read with whisky and revolver loaded with a single bullet (for a slightly more cheery view try Roger Bootle here), the Daily Telegraph’s Jeremy Warner throws in his usual grim twist:   

A bizarre money-go-round has developed, which works something like this. Fearing crippling property losses and a possible exit from the euro, the Spanish depositor removes his money from Spain and places it in an apparently “safe” German bank account. But unable to invest these inflows safely, the German bank places the money on deposit with the Bundesbank. Denied access to market funding, the Spanish bank taps the European Central Bank for the money instead, which in turn uses the excess liquidity building up at the Bundesbank. It’s unclear where the ultimate liability would lie in the event of default and/or exit from monetary union, but in all likelihood with the German taxpayer.

The German taxpayer, that is, who was never asked whether he wanted this nonsense currency in the first place.

For her part, Angela Merkel veers between steely prudence and the dream-language of grand schemes, the language of delusion and disaster:

In a speech this month, Angela Merkel, the German Chancellor, spoke of the euro in utopian terms as not just a currency. Rather, she said, it is a “schicksalsgemeinshaft”, or “community of destiny” that Germans are committed to seeing through, almost whatever the costs.

Stalingrad will be taken.

Meanwhile, back in the real world, this is not the first story to appear on lines like these:

Industrial conglomerate Siemens acquired a banking licence in December 2010. That allowed it to access directly European Central Bank funds, so cutting its exposure to swings in jumpy currency markets. It also took to parking cash at the ECB, once depositing €500m after withdrawing them from riskier French lenders.

Now, with just about everyone reckoning Greece is heading for the exit, the treasury operations of multinational companies have gone into overdrive. WPP, Reckitt Benckiser and Diageo, to name just three, have taken to a daily sweep of euros from their accounts to reduce the risk of any overnight devaluation.

Tick tock.



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