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Commentary

European Cos Moving Cash To Germany

That’s what Bloomberg says:

Grupo Gowex (GOW), a Spanish provider of Wi-Fi wireless services, is moving funds to Germany because it expects Spain to exit the euro. German machinery maker GEA Group AG is setting maximum amounts held at any one bank.

The Bundesbank, Germany’s central bank, registered capital inflows of 11.3 billion euros ($15 billion) from non-banks in September, according to the breakdown of its current account published Nov. 9. That helped transform a deficit of 47.3 billion euros in Germany’s balance of other capital flows in August to a surplus of 700 million euros in September.

Let’s see. You have:

  • A huge problem with PIIGS where it’s evident some of them can’t repay their loans, and are in trouble unless ECB prints money to buy their debt.
  • Germany won’t allow printing because it has faced hyperinflation in the 20s and the smell of it still lingers around.
  • Some of the PIIGS will then have to leave the Euro and devalue their currency so they can roll debt over.
  • Currently, you can move money within the Euro zone easily, at least if you are a company.

In that context, there is obviously going to be moves of money out of the troubled areas. Greece has seen huge sums of money leave its shores; in September and October alone, they’ve lost 13 billion euros in the banking system.

Georgios Provopoulos, the governor of the central bank of Greece, is a man of statistics, and they speak a clear language. "In September and October, savings and time deposits fell by a further 13 to 14 billion euros. In the first 10 days of November the decline continued on a large scale," he recently told the economic affairs committee of the Greek parliament.

With disarming honesty, the central banker explained to the lawmakers why the Greek economy isn’t managing to recover from a recession that has gone on for three years now: "Our banking system lacks the scope to finance growth."

He means that the outflow of funds from Greek bank accounts has been accelerating rapidly. At the start of 2010, savings and time deposits held by private households in Greece totalled €237.7 billion — by the end of 2011, they had fallen by €49 billion. Since then, the decline has been gaining momentum. Savings fell by a further €5.4 billion in September and by an estimated €8.5 billion in October — the biggest monthly outflow of funds since the start of the debt crisis in late 2009.

Effectively, now, it’s either a massive Euro collapse, or an action to bring everyone into a singly (economically) governed nation. There are no other options – time is running short.