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February 9, 2016 | Capital Flight Intensifies in Italy and Spain; Curiously, Money Flows Into French Banks

Mike 'Mish' Shedlock

Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.

Money continues to pour out of Italian and Spanish banks for safer havens. This month I note a curious side effect: A huge amount of money went into French banks instead of German banks. The following table shows the winners and losers.

Target2 Imbalances in Billions of Euros

CountrySymbolDec Target2 BalanceNov Target2 BalanceMonth-Over-Month ChangeComment
SpainES-254.1-241.8-12.3Highest Since 2012
ItalyIT-248.9-229.6-19.3Highest Ever
GreeceGR-94.4-97.32.9Lowest Since 2014 Q4
ECBECB-83.8-73.8-10Highest Ever
FranceFR-29.2-73.544.3Remarkable Comeback
GermanyDE584.2592.5-8.3Second Highest Since 2012
LuxembourgLU147.6140.47.2Highest Ever
NetherlandsNL54.749.45.3Highest Since 2002
FinlandFI20.131.8-11.7Lowest Since 2014 Q4
CyprusCY2.42.40Second Highest Ever

I created the above table using data from the ECB Statistical Data Warehouse

European Country Codes

The above from Eurostat Country Codes.

Lack of Trust

To encourage more lending, ECB president Mario Draghi cut the deposit rate for money parked at the ECB from -0.2% to -0.3% on December 3.

Clearly that did not work.

Europe Fears Bail-Ins

Stepping back a bit, here’s a key question: What caused the depositors to flee their banks in the first place?

The answer is fear of bail-ins, confiscations, capital controls, and bank failures like we have seen in Greece and Cyprus.

Target2 Refresher Course

Target2 imbalances are an excellent measure of capital flight from eurozone countries to other eurozone countries.

Those needing a further explanation of Target2 should consider Discussion of Target2 and the ELA (Emergency Liquidity Assistance) program; Reader From Europe Asks “Can You Please Explain Target2?”

Mike “Mish” Shedlock

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February 9th, 2016

Posted In: Mish Talk

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