Deposit Flight From Europe Banks Eroding Common Currency

[dkf]

An accelerating flight of deposits from banks in four European countries is jeopardizing the renewal of economic growth and undermining a main tenet of the common currency: an integrated financial system.

A total of 326 billion euros ($425 billion) was pulled from banks in Spain, Portugal, Ireland and Greece in the 12 months ended July 31, according to data compiled by Bloomberg. The plight of Irish and Greek lenders, which were bleeding cash in 2010, spread to Spain and Portugal last year.

The flight of deposits from the four countries coincides with an increase of about 300 billion euros at lenders in seven nations considered the core of the euro zone, including Germany and France, almost matching the outflow. That’s leading to a fragmentation of credit and a two-tiered banking system blocking economic recovery and blunting European Central Bank policy in the third year of a sovereign-debt crisis.

“Capital flight is leading to the disintegration of the euro zone and divergence between the periphery and the core,” said Alberto Gallo, the London-based head of European credit research at Royal Bank of Scotland Group Plc. “Companies pay 1 to 2 percentage points more to borrow in the periphery. You can’t get growth to resume with such divergence.”

http://mobile.bloomberg.com/news/2012-09-18/deposit-flight-from-europe-banks-eroding-common-currency.html

[Zalatix]

1. Where the hell is all that money going?

[dkf]

2. It's moving to Germany and France and the other stable countries.

Bonds, deposits, funds are draining away once a country is on the s list.

[Nuclear Unicorn]

3. If we're lucky

someplace where ther depositors feel it will A) make a return or B) be safe.

Worse case scenario is they do the financial equivalent of burying it in a coffee can in the backyard. *That* will grind the economies to a halt.

[nanabugg]

4. Boy, The Caymans must be the richest place on earth behind Switzerland. nt