ARmy Rumour SErvice

Here's an article from the BBC's Paul Mason about the flight of capital from Greece.

BBC News - Watch deposit flight, not the eurocrats

...the future of Greece in the euro may not lie in the hands of the electorate as voters: it lies in the hands of the electorate as bank customers.

The point that Mason is making is simple:

1) Money is flooding out of Greek banks and heading either under mattresses or over the border
2) If an individual bank runs out on money, it can be backed by the Bank of Greece
3) There are limits set by the ECB as to how much the Greek Central Bank can lend to Greek banks
4) If that limit is breached, the ECB has two options:

-- Stop the Greek Central Bank lending any more, leasing to the collapse of one or more Greek banks
-- Vote to raise the amount of money the Greek Central Bank can lend

If either option is invoked, it is likely to focus attention on the banking systems in Italy and Spain, possibly starting a flight of capital from there as well. And is there is a run on the banks in Italy and Spain, that's game over for the euro.

Wordsmith

Originally Posted by Grumblegrunt

IMO whats really needed for greece is an invasive autocratic dictatorial organisation to take it over and enforce the payment of taxes backdated the 10 years or so since they joined the euro. if the greeks cant stomach austerity then they need to start paying for the high life.

An invasive autocratic dictatorial organisation has taken over Greece - its called the European Union.

Greece is no longer running its own economy - its obeying the diktats of Brussels.

Wordsmith

Originally Posted by FORMER_FYRDMAN

Alib, as some of us have been saying since almost page 1, the only options available for the Euro are to let Greece sink or agree to an EU where there are massive, permanent and institutionalised capital transfers - mostly from Germany. Germany might seek to head off this one with a one-off cash-injection but, unless Greece (and the others) are subject to massive reform, it is inevitable that this process will repeat itself. The problem is structural.

The last decade has more been a matter of dizzy bankers thrusting loans into the hands of anyone willing to take them. An EU where venture capital moves around prudently seeking opportunity in weakness might not actually be a bad thing. There isn't much likelihood of opportunity in Greece but its a tiny dysfunctional carbuncle best ignored and who knows things may change a few decades hence, there are other bets even if they look unlikely now.

Greying, anally retentive and risk adverse Germany is a relatively weak longterm prospect if it remains set on being a bigger version of self obsessed, defensive Switzerland. It wasn't so long ago that Brits mocked them for clinging to industry and the cute hoor Irish decried their stolid ways. The last thing europe actually needs is the propagation of the German model, it works for the Krauts but forget its plodding ways in the PIIGS, it would be like New Hampshire taking over the US. After decades of massive public investment Germany has a highly developed economy with a skiled highly productive workforce but one that luxuriates in a mayfly short working life and does not breed, it's going to be bumping up against the hard charging Chinese shortly in its high tech markets, it can no more afford the EU failing than Virginia could the US breaking up in 1812. Spain like Ireland on the other hand has a population that has learnt to shift itself and a lot of potential, it actually looks like Texas shamed by S&L followed by Enron and dotcom boom California a while ago. The technocratic bear state is now a royally****ed bankrupt while the lone star rises on a low wage economy and that is the strength of diversity and adventurous capital. Parochial europe has yet to learn this lesson.

This crisis is Germany's moment just as 46 was an opportunity for the USA, the question is will they be continue to be timid pussies or take a roll on something larger? The current crop of Krauts are a risk adverse lot but they have a big stack of chips ridding on the EU surviving, they may yet surprise us after all look at the rust belt in the US nearly obliterated by asian competition, hedging for the future by spreading your bets around what may become Creative economies has its merits.

Originally Posted by Wordsmith

Here's an article from the BBC's Paul Mason about the flight of capital from Greece.

BBC News - Watch deposit flight, not the eurocrats



The point that Mason is making is simple:

1) Money is flooding out of Greek banks and heading either under mattresses or over the border
2) If an individual bank runs out on money, it can be backed by the Bank of Greece
3) There are limits set by the ECB as to how much the Greek Central Bank can lend to Greek banks
4) If that limit is breached, the ECB has two options:

-- Stop the Greek Central Bank lending any more, leasing to the collapse of one or more Greek banks
-- Vote to raise the amount of money the Greek Central Bank can lend

If either option is invoked, it is likely to focus attention on the banking systems in Italy and Spain, possibly starting a flight of capital from there as well. And is there is a run on the banks in Italy and Spain, that's game over for the euro.

Wordsmith

But I thought that Big A said this couldn't possibly happen because he and his mates were on the job and they had the biggest mattress in Europe and the rest of us were thick. Are you sure?

Originally Posted by FORMER_FYRDMAN

But I thought that Big A said this couldn't possibly happen because he and his mates were on the job and they had the biggest mattress in Europe and the rest of us were thick. Are you sure?

I don't think anyone can predict how this crisis will pan out - there are just too many variables and imponderables. To give a single example, who could have predicted a month ago that Syriza might come to power in Greece and be prepared to stick two fingers up in the direction of Merkel?

The fact of the matter is that the Euro is a fairly unprecedented experiment - and by definition when the euro got into trouble, there was no textbook of solutions to turn to. The eurozone is making it up as it goes along - with the increased possibility of wrong decisions. The other problem with the euro is that all corrective actions have to be agreed with the individual euro zone governments. This means any decision tends to be a consensus (aka the lowest common denominator) and takes weeks/if not months to agree.

What is apparent is that this crisis is picking up pace. If we go back a couple of years to when it started, problems flagged themselves up a couple of months ahead of time. Summits were then grandly called and the markets gave the agreed actions the benefit of the doubt for a further couple of months to see how they panned out. As the markets lost confidence in the euro zone to solve its own problems, that confidence has eroded and the grace period the market is prepared to extend to eurozone corrective measures has markedly shortened.

We will reach the crux of the crisis when the euro zone is no longer able to react faster than the problems occur. We have the experience of Northern Rock to show us how quickly runs on banks can start. Were there a run on the banks in Greece, I suspect they would have to be shut for a couple of days while the eurozone agreed yet another collective action. The sight of closed banks and panicked queues outside would be a body blow to worldwide confidence in the eurozone surviving in its present form.

Wordsmith

Originally Posted by alib

This crisis is Germany's moment just as 46 was an opportunity for the USA, the question is will they be continue to be timid pussies or take a roll on something larger? The current crop of Krauts are a risk adverse lot but they have a big stack of chips ridding on the EU surviving, they may yet surprise us...

But Germany is also restrained by the elections in coming in 2013. From what I read, the Germans are strongly pro euro but strongly against transfer unions. That will constrain German political parties from proposing sweeping solutions for the next year. Were this ordinary times, the euro could muddle along for 12 months while the German political parties got the elections out of the way and then suddenly discovered an appetite for bold measures. These are not ordinary times.

I doubt we will get through another 12 months without the need for a major decision on what to do to help the euro survive. And not even Merkel's biggest fans would claim she has a flair for rapid and bold decision making. Her modus operandi is to try and solve the problem through a series of small decisions rather than by a grand gesture. Unfortunately, if the euro is to survive a grand gesture (like political and economic union) is what is required.

The eurozone governments have painted themselves into a corner. They no longer have any easy decisions left - only hard ones. And if they shirk the hard decisions, the markets will make those decisions for them.

Wordsmith

Originally Posted by Wordsmith

Greece is no longer running its own economy - its obeying the diktats of Brussels.

Wordsmith

Wrong on both counts, words have still largely not turned into deeds....

Originally Posted by FORMER_FYRDMAN

But I thought that Big A said this couldn't possibly happen because he and his mates were on the job and they had the biggest mattress in Europe and the rest of us were thick. Are you sure?

You seem to understand less of the fundamentals than most, Wordsmith is right, there are capital rules under which banks can gain access to refinancing under normal operations. He is wrong about the same thing happening anywhere else.
You might be right about being thick, as there is ample money available IF certain conditions are being met for "fine tuning" operations either from the ECB, or the central banks. The ECB would also have a mandate to act if any event were to be seen as a threat to the Eurozone as a whole - don't hold your breath there, as I don't see any likelyhood of that being needed.