Home—Blog—How Greece could bring capital controls back to Europe
Jun 20, 2011, 04:41
Posted byMerryn Somerset Webb
Comments (17)
There is a rumour swirling around that the world’s largest commercial money printer De La Rue has been commissioned to print a new Deutschmark.
This wouldn’t be that big a deal for De La Rue – it already prints 150 currencies so what’s one more. But the idea that the Germans might even be contemplating a return to their own currency is a very big deal indeed. So much so that most of those who hear this rumour dismiss it as scaremongering nonsense.
I’m not sure it is. After all, the idea that the euro might break up is hardly new (we wrote here about how Germany might revert to the DM in February 2010 for example) and so it makes sense for all sovereign governments to have a back-up plan. If Greece could afford it, I daresay they’d have asked De La Rue to print up some new Drachma for them too. Or given that not being able to afford things is no longer perceived as a barrier to governments having them, perhaps they already have. Who knows?
The only thing we do know for sure is that, while a few years ago it was “unthinkable” (John Authers in 2009) that even one country would end up out of the euro, today it seems more than possible.
But it isn’t just governments that are creating backstops for crisis. Populations are too. The business sections at the weekend reported that UK banks are fast pulling out of the wholesale money markets in Europe and the smart money left Greece long ago. If you think that there is a chance that Greece might end up out of the euro, why one earth would you hold any money on deposit in a Greek bank? Instead of taking the risk that you would end up holding a large pile of devalued Drachma II instead of the euros you thought you had, surely you would shift it into a country less likely to see a huge currency devaluation – Germany, Switzerland, or Norway perhaps – and plan to transfer it back post devaluation. Surely it can’t be long before the ordinary money follows the smart money and the Greek financial system ends up totally decapitalised?
And if the situation in Greece isn’t sorted soon, surely it makes sense to think that we will see capital flight from other peripheral nations too. If you held large cash deposits in Portugal and Spain, wouldn’t you also be thinking about shifting them somewhere a tad safer too? This is all interesting because right now both smart and stupid money can do as it likes. There are no controls on how money can be shifted around inside or indeed outside the eurozone. If you live in Greece and you want to hold all your money in London or in France, you can do just that. And John Dizard writing in the FT points out that the European treaty seems to explicitly guarantee that you will be able to continue to do so: “ all restrictions on the movement of capital between Member States and between member states and third parties are to be prohibited” (Article 63).
However, look further down and you find that this isn’t a blanket guarantee. Instead, should it be justified “on grounds of public policy or public security,” it appears that there may be exceptions.
I bet that’s a clause being much studied in Europe at the moment given the ever-present risk of a depositor panic and consequent bank run. That raises the spectre of capital controls in Europe: the longer this crisis goes on, the more likely it is that depositors in the peripheral countries will panic. And the more they panic, the more likely they are to find that “restrictions on the movement of capital between Member States and between member states and third parties” are no longer prohibited.
If I lived in any of the peripherals, I think I would move my money sooner rather than later. It is also worth remembering that capital controls are hardly an alien concept to the UK: we had them here until 1979.
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(20 June 2011, 06:52PM) Complain about this comment
Now there's a good tipBuy shares in De La Rueor even get a job
(21 June 2011, 11:28AM) Complain about this comment
gonna pop down the pub and see if there are any more rumours going round.....seems others do...........
(21 June 2011, 02:41PM) Complain about this comment
Great article Merryn - As so many of your views/predictions have turned out to be spot on, I think you have once again highlighted something very much within the bounds of possibility. @mic - I don't think you will get quite the same foresight down the pub ;-)
(21 June 2011, 11:21PM) Complain about this comment
I very much doubt De La Rue would do any Deutschmark manufacture - There is a perfectly good banknote company in Germany by the name of Gisecke & Devrient who used to do it, and they currently print and make the paper for Germany's share of Euros.http://www.gi-de.com/en/index.jsp
(22 June 2011, 10:54AM) Complain about this comment
Spot on the money as usual,Merryn.
(22 June 2011, 10:55AM) Complain about this comment
Look, the Greek economy involves selling sun, sand, sea and... culture. These are inexhaustible resources and are not depleted by economic exploitation. They will still be there in a thousand years' time when the euro is as dead as a tetradrachm. How difficult can it be to run a successful economy in such a benign environment? The Greeks' real problem is they've had it too easy and have become complaisant. They need to just take the pain and get it over with.
(22 June 2011, 11:22AM) Complain about this comment
Excellent analysis, Merryn. Mark - you're quite right. I would go further. Here in "developed" Europe many have become complacent and used to living beyond our means, on public and private debt - in my view encouraged by politicians who see short term vote-winning as far better than long-term economic health, which risks public approbation. Anyone want to change the way that politics is motivated? Or is that just pie in the sky?
(22 June 2011, 11:49AM) Complain about this comment
How will shareholders who hold Euro denominated shares in Greek banks fare under a worst case scenario? If a Greek bank fails, will shareholders be able to access their certificate-less shares held in their name by said bank? Is it possible to transfer such shares to other banks in a different EU country?Thanks for any tips!
(22 June 2011, 03:25PM) Complain about this comment
Come on Merryn, do your homework!!De La Rue never made the DM. It was produced by Giesecke und Devrient who now make the German Euro. There is as much chance DLR being asked to make this as anyone believing the rumours you are trying to stir up.Let's have some realistic reporting please.
(22 June 2011, 04:24PM) Complain about this comment
Banker, The Delarue bit it just a rumour - not the point. It doesn't matter who might or might not be printing DMs. The point is that it makes sense for governments and individuals to make contingency plans...
(22 June 2011, 04:55PM) Complain about this comment
Why go the Drachma when they can use the moneyweek favorite: Bitcoins te he ... http://uk.ibtimes.com/articles/167131/20110621/bitcoin-exchange-hacked-for-nearly-9-million.htmPerhaps there is a solution for Greece: the graphics cards in all the PC's in Greece could be set to work Bitcoin mining or cracking the security...
(23 June 2011, 02:28PM) Complain about this comment
@Michael Lewis, Yes Bitcoin didn't turn out to be quite what it promised! But the fact that so many people wanted them too tells us something. If there was a global digital store of wealth would the Greeks be fighting over olive groves and gold in their attempts to escape their domestic currency?
(24 June 2011, 12:25PM) Complain about this comment
Greece won't go down for ages. After all, they're only being lent printed money indirectly from the US Fed. An orderly exit from the euro will happen as soon as obfuscated money is in the places it needs to be."Ahhh.... to be a banker" How I too would like to fill my bank account with a few strokes on my keyboard!
(25 June 2011, 10:51AM) Complain about this comment
Perhaps a stretch but worth thinking about. A convincing rumour of capital controls in Southern Europe would presumably impact equities too, for companies based in Spain, Portugal, Greece et al, or even foreign companies with substantial revenue from those countries.
(29 June 2011, 12:10PM) Complain about this comment
Great article!
(19 July 2011, 12:28PM) Complain about this comment
I have some euros in a current account in Jersey run by Santander Private Banking (formerly Abbey International). Does this count as Spanish Euros? I use it for trips in Europe as they give you a Euro debit card. I have only left in the minimum amount just in case! How does one know which country to attribute the Euros to?
(19 July 2011, 12:58PM) Complain about this comment
Im based in Dublin and have euros in an Irish bank. Would they be considerably safer in a sterling account?
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