Savers across Europe are fleeing the continent's debt crisis. In Europe's most economically stricken countries, people are taking their money out of banks as a way to protect their savings from the continent's growing financial storm. Worried that their savings could be devalued, or that banks are on the verge of collapse and that governments cannot make good on deposit insurance, people in Greece, Spain and beyond are withdrawing euros by the billions – behaviour that is magnifying their countries' financial problems.
In Greece and Spain, two of the nations hardest hit by the debt crisis in the 17 countries of the eurozone, savers and businesses are already pulling money out of banks. They are worried either that their money could be converted into a new currency at a much lower value or that their banks might be on the verge of collapse.
There is a steady "jog" on the banks at the moment, rather than a full-bore run. But it threatens to undermine the finances of those countries' lenders who are already stressed. And if it does turn into a full bank run after Greece's crucial election today, it could hasten financial disaster in Europe and help spread turmoil around the world. Since the Greek debt crisis broke in late 2009, deposits have fallen by 30 per cent as savers have slowly pulled some €72bn (£58bn) from local lenders, with total household and corporate deposits standing at €165.9bn in April, according to the latest data from the Bank of Greece.
Spanish deposits have fallen about 6 per cent over the past year. They dipped suddenly in April by about €3.1bn (or 1.8 per cent) to €1.624trn as problems with the country's troubled banks stated to grow to alarming proportions. This is despite deposits up to €100,000 being guaranteed by governments across the eurozone. Spain's financial turmoil quickly worsened in late May when the country's second-largest lender, Bankia, announced it needed capital of €19bn to stay afloat. Bankia denied reports of a rush by its customers to withdraw, but the bailout scared Spaniards, who had assumed their money was safe.
One Bankia client, Rosa Monsivais, panicked and decided she had to move her savings from Bankia to a bank she thought would be safer. She chose a foreign bank with Spanish operations, the Dutch owned ING. It took longer than she thought, leading to anxious days until she knew her money was safe in her new account. "It scared me a little. I took all my money out and put it in ING," said Monsivais, a 41-year-old graphic artist, who would not say how much money she moved. "But it took a full week to do this transaction. I was reading the newspaper each day and it worried me."
The money in Europe is heading to different places. Some has simply been withdrawn and spent out of urgent personal need as people lose their jobs because of the recession. Some is winding up in bank accounts or invested in countries that are more stable, such as Germany. The rest is being invested in property or bonds issued by other eurozone countries.
Today's vote could determine whether Greece stays in the euro or leaves in chaos. Since 2010, Greece has been dependent on two bailouts, totalling €240bn, to pay its bills. In return, the government had to promise to make deep spending cuts to lower its deficit. That has helped put the country in a deep recession. Leading political figures have called for renegotiating or rejecting the bailout deal, which could lead to a payment cut-off from mistrustful eurozone governments and the International Monetary Fund. Such a cut-off could lead to a collapse of government finances. And a euro exit meansGreece would have to print its own money to pay bills or recapitalise banks.
It's not just in the financially troubled countries that savers are worried. Wealthy Germans are concerned that inflation will surge if Europe's central bank has to step in and spend huge amounts of money to prop up the single currency. So they are putting more money into their own country's expensive real estate in the hope that their investment will keep its value. Amid mounting worries about Spain and the safety of the eurozone, well-heeled Spaniards have been moving money to Switzerland and the US for months, said Bruce Goslin, managing director for Europe, the Middle East and Africa at the K2 Intelligence consulting group.
Spain's banking problems come from the collapse of a real estate boom. Banks that made reckless loans are not being paid back and are seeing the value of the properties they invested in tumble. This is making the country's banking system increasingly financially insecure, further heightening savers' fears that their money is not safe. Fernando Encinar, head of research at Idealista.com, a real estate website, said some wealthy people who didn't have money to buy during the boom were now taking advantage of prices that have fallen 26 per cent in four years.
Many Italians – some of Europe's most dedicated savers – are also moving money. They are worried that their government will be the next to fall victim to the crisis because of its heavy debt load. That is despite Italy's banks, government finances and economy being in better shape than Spain's.
Some 60,000 to 70,000 small investors have bought property abroad, mostly in Germany but also on the Spanish islands, in the past three months, representing a total annual investment of €400m, said Paolo Righi, president of the Italian Federation of Real Estate Professionals.
"They are looking for certain investments," he said.
Ruth Stirati, who runs a business helping Italians buy property in Berlin, said she gets about 10 emails a day asking about properties. "Over the last two or three weeks, there has been a new panic," she said. "They have a thousand fears: that the banks won't have money, that the euro will fail. It is without substance, their doubts. But they worry there will be one strong euro in Germany, and one that is weak."
What next? The scenarios
Greece leaves the euro by agreement
The markets would undoubtedly take a dive, with share prices falling by as much as 15 per cent. If the European Central Bank steps in and prints money this fall could be slowed, but the initial slump is unlikely to be preventable. As individuals and companies panic that another country could be next, there is likely to be a rush on banks, with people trying to move euros out of countries that risk exiting the single currency zone. German government bonds will rally, making it cheaper for Germany to borrow, but the cost of borrowing for Spain and Italy will rise. In this case the value of the euro would decline, but the most dramatic fall would be in the Greek currency, which would decline by around 50 per cent.
Greece stays in the euro
After an initial rally of around 5 to 10 per cent, the global stock market would go back to the volatile or flat periods of the last two years. The euro would go up in value, to $1.32, compared to its current value of $1.26. As nervousness about the country's future in the currency fades, bank deposits would stabilise as people stop panic-withdrawing cash. The government costs of borrowing should start to fall, with Spanish interest rates on its 10-year bonds falling to 6 per cent – down from a 7 per cent high earlier this month.
Greece is ejected from the eurozone
This is the worst-case scenario. European markets would tumble at a rate of 30 per cent, putting them back to the bad old days of 2009. Bank deposits in Greece and any eurozone country that looks at risk of being the next reject – such as Portugal, Spain, Italy and Ireland – will all be plundered as people try to get their cash to a safer place as quickly as possible. Germany, the UK and the US will benefit from the chaos as people see them as safer bets. But, while the cost of government borrowing for these countries falls, those in Spain and Italy will soar. The euro's value would plummet from $1.26 to $1.10.
Bidding for power in Greece
New Democracy Accepts the main targets of austerity programme, but will renegotiate. Neck-and-neck with radical leftist rivals, Syriza. Promises to jump-start growth and not impose new taxes.
Syriza Public rage at austerity measures catapulted Syriza into second place in 6 May election. Vows to scrap the bailout but keep Greece in the euro, nationalise banks, stop privatisations, tax the rich and erase the debt.
PASOK The socialists played a key role in securing aid package so bears brunt of public anger. Trails Syriza and New Democracy but could be in a coalition.
Independent Greeks Right-wingers who entered parliament for the first time in May with 10.6 per cent of vote. Plans to raise €250bn by selling financial instruments and dismisses the idea that Greece will leave the euro if it reneges on its bailout agreement.
Democratic Left Pro-EU with anti-bailout message, it pledges reforms to tackle tax evasion and corruption. Wants 60 per cent of the Greek debt to be transferred to the European Central Bank.
KKE Secured 8.5 per cent of the May vote. Still espouses Marxist-Leninist ideology. Leader wants a weak government installed that would set the stage for a workers' revolution.