Daniel Knowles: The only smart investment these days is in tinned food, a shotgun and a lease on some remote island ...
Published 07/11/2011 | 15:37
PERHAPS it's just because it's Monday; we've known about this slow-mo European financial crisis for over a year now after all. But today I can't help but feel that it's all over. Bleary-eyed bond traders are suddenly realising that Italy's economy is contracting fast. Its enormous debt, which looked comparatively safe at 1 or 2pc per year growth, now looks unsustainable. You earn 4.38 percentage points more interest – or about three times as much – per year lending to the Italian government than to the German ones, and the difference is a reflection only of risk.
Meanwhile, The New York Times reports on the untold Greek story: capital flight. Nobody in Greece knows what is going to happen, but they know that Greece's future in the euro might be at risk. Anyone with savings is taking them out of their banks and sending them overseas, where the risk that they will be turned into worthless drachma is less. The newspaper quotes a truck driver who has sent $69,000 to Sweden. Overall, they estimate that as much as $20 billion has left the country in the last two months alone. That's twice as much as the amount Greece is meant to be bailed out next month. The "enormous" sums of money sent to Greece so far are like trying to fill up an unplugged bathtub with an eggcup.
The outflow is only likely to speed up. European leaders are openly speculating that Greece might have to leave the euro, and as that possibility becomes more real, a slow outwards flow will become a panic. The price of everything in Greece – property, cars, land, food – will plummet as Greeks sell everything to get money out of the country. The Greek government, which finds it hard enough to raise taxes as it is, will see its revenues drop even faster as the economy deflates. The bailouts necessary just to keep Greece in the eurozone, and its state functioning, will get bigger by the second – doubling and tripling in size.