Money Is Vanishing From Southern Europe

A blog about business and economics.
May 25 2012 10:48 AM

Money Is Vanishing From Southern Europe

When you read about how there's "a crisis" in Europe and also that the recession is worsening it's worth stopping for a moment to check on the mechanics. After all, say what you will about Spanish labor market regulation or Italian competition policy, but they're not worse than they were nine months ago. So why are their economies shrinking?

Fiscal policy is part of the story, but a growing part of the story is that companies no longer trust that euros kept in southern european bank accounts are safe so the medium of exchange is vanishing from troubled countries:

Several multinational corporations have already taken the same view. Vodafone, the mobile phone operator, and GlaxoSmithKline, the pharmaceuticals firm, say they are “sweeping” money out of Greece and into British banks each evening. This applies not just to Greece but to most other euro nations, although Glaxo says it still keeps money in Germany.
Advertisement

Something to note is that this is exactly what one of the downsides of leaving the euro would be. If Spain reintroduced the peseta, foreign firms would still sell some stuff to Spanish customers. But they probably wouldn't want to leave many of their profits laying around peseta-denominated in Spanish banks, available as funds for lending to the Spanish domestic economy. Spain would end up capital-constrained and need to spend a lot of time worrying about its foreign exchange holdings. This is a real downside and not just something to gloss over. But the rub is that if you're going to suffer massive capital flight anyway, then the case for ditching the euro gets that much stronger.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.

TODAY IN SLATE

Politics

Meet the New Bosses

How the Republicans would run the Senate.

The Government Is Giving Millions of Dollars in Electric-Car Subsidies to the Wrong Drivers

Scotland Is Just the Beginning. Expect More Political Earthquakes in Europe.

Cheez-Its. Ritz. Triscuits.

Why all cracker names sound alike.

Friends Was the Last Purely Pleasurable Sitcom

The Eye

This Whimsical Driverless Car Imagines Transportation in 2059

Medical Examiner

Did America Get Fat by Drinking Diet Soda?  

A high-profile study points the finger at artificial sweeteners.

The Afghan Town With a Legitimately Good Tourism Pitch

A Futurama Writer on How the Vietnam War Shaped the Series

  News & Politics
Photography
Sept. 21 2014 11:34 PM People’s Climate March in Photos Hundreds of thousands of marchers took to the streets of NYC in the largest climate rally in history.
  Business
Business Insider
Sept. 20 2014 6:30 AM The Man Making Bill Gates Richer
  Life
Quora
Sept. 20 2014 7:27 AM How Do Plants Grow Aboard the International Space Station?
  Double X
The XX Factor
Sept. 19 2014 4:58 PM Steubenville Gets the Lifetime Treatment (And a Cheerleader Erupts Into Flames)
  Slate Plus
Tv Club
Sept. 21 2014 1:15 PM The Slate Doctor Who Podcast: Episode 5  A spoiler-filled discussion of "Time Heist."
  Arts
Television
Sept. 21 2014 9:00 PM Attractive People Being Funny While Doing Amusing and Sometimes Romantic Things Don’t dismiss it. Friends was a truly great show.
  Technology
Future Tense
Sept. 21 2014 11:38 PM “Welcome to the War of Tomorrow” How Futurama’s writers depicted asymmetrical warfare.
  Health & Science
Bad Astronomy
Sept. 22 2014 5:30 AM MAVEN Arrives at Mars
  Sports
Sports Nut
Sept. 18 2014 11:42 AM Grandmaster Clash One of the most amazing feats in chess history just happened, and no one noticed.