Weekend Economists Go Out with a Boom August 24-26, 2012

[Demeter]

38. Analysts fear euro-zone capital flight might snowball

WHY ARE THEY SO WORRIED? WHAT COULD POSSIBLY GO WRONG?

http://www.washingtonpost.com/business/economy/analysts-fear-euro-zone-capital-flight-might-snowball/2012/08/23/e02102a2-d1cc-11e1-8bea-6dc0b4879aab_story.html?hpid=z4

Insurance giant AIG startled markets last week when it signaled its waning faith in the euro by moving tens of millions of dollars worth out of the currency zone, reducing its holdings in banks in Germany, France, Spain and Italy.

The news came on the heels of a similarly unsettling announcement by International Airlines Group, the parent company of British Airways, which said Aug. 3 that it had reduced its exposure to Spain and formed a committee to prepare for the worst-case scenario of Spain exiting the euro zone.

The one-two punch is the latest in a series of efforts by corporations, central banks and individuals to move money out of crisis-stricken euro-zone countries as the debt crisis envelops an ever-larger part of the continent.

Such currency moves are bets on the future of national economies. The recent capital flight, analyst say, is a vote of no confidence in the euro that some worry could snowball into a series of silent bank runs. If institutions and consumers lose faith in the euro, a massive flight could lead to economic collapse...