In Pamplona, Spaniards run with the bulls. In Athens, Greeks run on the banks. Yes, folks a good, old-fashioned bank run is underway in Greece.
During the last couple of years, anxious Greeks have yanked a net €72 billion from the banking system — or nearly a third of total short-term bank deposits. And according to the scuttlebutt, withdrawals have been accelerating in recent days, as the “unthinkable” possibility that Greece might withdraw from the euro bloc has become increasingly thinkable.
So who could blame the Greeks for grabbing their euros before they turn into zeros…or, at best, drachma? In fact, given the chaotic conditions now unfolding in Europe, who could blame anyone for grabbing their euros before they turn into zeros?
Anxious Spaniards are also queuing up to withdraw their euros from the banking system. And many bond investors are behaving similarly: they are dumping Spanish government bonds and/or buying insurance against a default by the Spanish government.
You all remember Spain, don’t you, Dear Readers? That’s the country that, if it were an American high school senior, would be voted, “Most likely to follow Greece out of the euro zone.” Spain’s fiscal problems are not new news, but thanks to the renewed turmoil in Greece, distress has returned to the Spanish bond market.
As the chart above illustrates, the yield on Spanish government 10-year bonds recently touched a six-month high, while the price of insuring Spanish bonds against a default just hit a new all-time high.
That’s what we would call, no bueno.
Eric Fryfor The Daily Reckoning
Eric J. Fry, Agora Financial's Editorial Director, has been a specialist in international equities for nearly two decades. He was a professional portfolio manager for more than 10 years, specializing in international investment strategies and short-selling. Following his successes in professional money management, Mr. Fry joined the Wall Street-based publishing operations of James Grant, editor of the prestigious Grant's Interest Rate Observer. Working alongside Grant, Mr. Fry produced Grant's International and Apogee Research, institutional research products dedicated to international investment opportunities and short selling.
Mr. Fry subsequently joined Agora Inc., as Editorial Director. In this role, Mr. Fry supervises the editorial and research processes of numerous investment letters and services. Mr. Fry also publishes investment insights and commentary under his own byline as Editor of The Daily Reckoning. Mr. Fry authored the first comprehensive guide to investing internationally with American Depository Receipts. His views and investment insights have appeared in numerous publications including Time, Barron's, Wall Street Journal, International Herald Tribune, Business Week, USA Today, Los Angeles Times and Money.
“During the last couple of years, anxious Greeks have yanked a net €72 billion from the banking system — or nearly a third of total short-term bank deposits.”
“during the last couple of years”? oh come on, that’s not a bank run, that’s them living off of their savings. do greeks have enough left in the banks to even have a bank run?
“short-term”, eh? how ’bout long term? now that would be a real data point.
G-man, has a point. it does not qualify for a ‘run’ per se – but it is sure a heck of a trend. funny how long it takes to realize the train is really heading down the tracks straight for you and react.
still, i am not so sure they are “living off their savings” yet. that’s eating the seed corn of retirement before the real shortage and starvation no matter how you cook it.
if i was in greece, i would be cashing out all my euros post haste and driving up to a nice swiss bank and opening an account and renting a safe deposit box.
Given a choice, Bernanke will likely strangle the currency (your money)... in favor of “strengthening” the economy.
Eventually, economic reality and markets will collide -- unfortunately, the higher the market, the harder the fall.
How certain business practices wind up jacking up costs before sticking you with the bill.
The Japanese Nikkei fell flat on its face overnight.
While Bernanke Runs Wild, Let’s Talk Ponies