mead cohen berger shevtsova garfinkle michta grygiel blankenhorn
Bank Runs May Spread to Spain

Bad economic news in southern Europe may be about to take an even more dramatic turn. The New York Times is reporting that many Spaniards are beginning to pull their money out of Spanish banks, moving their savings to safer banks in Germany and England. Media coverage is predicting a “bank run”, a bad sign considering that such fears can quickly become self-fulfilling prophecies. With the Spanish deposit insurance fund nearing bankruptcy, banks will go under without outside help, and a Spanish collapse would be far more damaging than a Greek collapse.

Spain’s problems are the clearest indictment yet of Europe’s approach to the crisis. At each stage of trouble, Europe has fudged rather than make swift, painful decisions. Meanwhile, the stakes grow, the costs grow, and the chances for workable compromise recede.

How much more of this can Europe take?

Features Icon
show comments
  • thibaud

    If Spaniards and Italians are moving their money to German banks, then we’re already seeing the public voting with its feet (hands?) so to speak for tight economic integration.

    Europe needs its own Alexander Hamilton now to make the case for a single monetary policy in the eurozone.

    There’s no way that the European elites can continue with the fiction any longer that Germany is not the dominant power on the European continent.

  • Kenny

    One would have to be brain dead to keep any more than a minimal amount of their money in any of the PIIG banks. I wouldn’t.

    Money in a bank is peoples SAVINGS — not investment, and savings is suppose to be risk free.

    What’s the cost of transferring money to a German bank? It can’t be much.

  • Eurydice

    You know, the NYT is a little like the cover of Business Week – when they get around to reporting on something, the trend is already over. That’s not to say that people won’t continue to take money out of the banks or that there won’t be urgency and hysteria, but the big money has been moving out for quite some time.

  • Jacksonian Libertarian

    The Dominoes are beginning to fall. The Dollar and the Pound will be the prime beneficiary’s as the Euro goes down the toilet. Euro denominated debt is going to take a beating, and all those export model economies which are holding huge amounts of Euro debt will find they overpaid even more than I had imagined for those Euros.

  • Alex Scipio

    How much more will europe take?

    All of it. There is no plan B. Europe is Europe. Nothing will change that.

    … and they’ll probably start shooting each other soon; it’s what they know how to do.

  • Mark Michael

    Ireland was the one country that had a major housing bubble and banks that made very risky loans that acted decisively immediately. Unfortunately for them, their pols made a major bad decision. They chose to (in effect) nationalize 3 of their biggest banks and make those banks’ creditors whole rather than require them to write down a major fraction of their investments.

    That put a very heavy burden on the Irish taxpayer/citizen. The Irish government did pass deep real cuts to their budget, including layoffs of civil servants, reductions in their pay and benefits. They cut transfer payments, and other government expenditures in a real way also.

    Unfortunately, those banks’ debts were so large, that it is going to take many years to pay off those creditors. The ECB and other EU Central Banks did make loans to Ireland, which the Irish remain on the hook for. There’s now talk of Ireland going back for more aid from the ECB & the other EU CB’s.

    But, IMO there’s no question that Ireland will tough it out and eventually recover from this foolish financial crisis. They’ve been quite adult about it IMO. (I wonder if it’s too late to ask the bank creditors to take a modest haircut. Most were shocked that it hadn’t happened.)

© The American Interest LLC 2005-2016 About Us Masthead Submissions Advertise Customer Service