How Big Is the Eurozone ‘Flight-of-Capital’?
The amounts involved in the flight of capital from the Eurozone are truly substantial. Silent bank runs are now happening within the eurozone. Up until a few months ago, they were relatively slow and prolonged. In recent months, they have shown signs of accelerating sharply, in a way which demands an urgent response from policy-makers, but nothing substantial is forthcoming. For example, Spain has already suffered 41.3 billion euros of capital flight in May alone, or a total of 163 billion euros in the first half, equivalent to about 16 per cent of its GDP. It is estimated that the Eurozone’s total outflow over the coming two years could be between 750 billion and 1.25 trillion US dollars equivalent per annum. Total bank deposits in the Eurozone add up to around 7.6 trillion euros, including 5.9 trillion euros belonging to households. The Eurozone’s peripheral countries, which are the most susceptible to capital flight, have 1.8 trillion euros in household deposits. There are three significant trends to note in regard to the flight of capital from the Eurozone:
1. Foreigners are moving their money out of Eurozone countries because for them even a small risk of devaluation of the euro or sovereign default is not worth taking;
2. Local depositors are moving their money out of more vulnerable Eurozone banks to bigger and stronger banks as well as foreign banks to safeguard against the potential collapse of some banks; and
3. Locals are also moving their money abroad, often from the local branch of a Eurozone bank to an overseas bank outside the Eurozone to stem the extent of their potential losses in the event of a devaluation of the euro.
