Tumblr Icon RSS Icon

Europe’s Silent Bank Runs

By Matthew Yglesias on April 18, 2011 at 9:15 am

"Europe’s Silent Bank Runs"

Share:

google plus icon

If you have Euros, and you want a bank account, you can put your money in an Irish bank. But then again, you could also put it in a Dutch or German bank. And increasingly, nobody wants to keep money in Irish banks where private sector deposits dropped at an annual rate of 9.8 percent in February. Tyler Cowen explains the significance:

This flight of capital reflects a centuries-old economic principle known as Gresham’s Law, sometimes expressed casually as “bad money drives out good money.” In this context, if two assets — euros inside and outside Ireland — are not equal in value in the eyes of the marketplace, sooner or later the legally fixed price parity will fall apart.

If enough depositors fear frozen accounts, the banks will be emptied out, and they also will require additional government bailouts, on top of the bailouts for the bad real estate loans. The banks come to resemble empty shells, conduits for public aid but shrinking and unprofitable as businesses — and, to a large extent, that is already the case in Ireland. Portugal is moving in this same direction, toward being a land inhabited by zombie banks.

It seems like only six years ago that Ireland was the hottest thing in right-wing think tankery.

‹ PREVIOUS
Grover Norquist Is The Left’s Best Friend

NEXT ›
The Perverse Distributional Consequences Of Tax Breaks Are a Feature To Some On The Right

By clicking and submitting a comment I acknowledge the ThinkProgress Privacy Policy and agree to the ThinkProgress Terms of Use. I understand that my comments are also being governed by Facebook, Yahoo, AOL, or Hotmail’s Terms of Use and Privacy Policies as applicable, which can be found here.