In Pamplona, Spaniards run with the bulls. In Athens, Greeks run on the banks. Yes, folks a good, old-fashioned bank run is underway in Greece.
During the last couple of years, anxious Greeks have yanked a net €72 billion from the banking system - or nearly a third of total short-term bank deposits. And according to the scuttlebutt, withdrawals have been accelerating in recent days, as the "unthinkable" possibility that Greece might withdraw from the euro bloc has become increasingly thinkable.
So who could blame the Greeks for grabbing their euros before they turn into zeros...or, at best, drachma? In fact, given the chaotic conditions now unfolding in Europe, who could blame anyone for grabbing their euros before they turn into zeros?
Anxious Spaniards are also queuing up to withdraw their euros from the banking system. And many bond investors are behaving similarly: they are dumping Spanish government bonds and/or buying insurance against a default by the Spanish government.
You all remember Spain, don't you, Dear Readers? That's the country that, if it were an American high school senior, would be voted, "Most likely to follow Greece out of the euro zone." Spain's fiscal problems are not new news, but thanks to the renewed turmoil in Greece, distress has returned to the Spanish bond market.
As the chart above illustrates, the yield on Spanish government 10-year bonds recently touched a six-month high, while the price of insuring Spanish bonds against a default just hit a new all-time high.
That's what we would call, no bueno.
for The Daily Reckoning Australia
From the Archives...
The Physical Gold Market - From the Weak to the Strong
2012-05-18 - Greg Canavan
Why JP Morgan is Playing the Same Old Rigged Game
2012-05-17 - Eric Fry
Why Greece Can't Afford to Stay in the Euro
2012-05-16 - Dan Denning
A Big Oops at JP Morgan!
2012-05-15 - Dan Amoss
Preparing For China's Growth Slowdown With The 'Energy Hub' Portfolio
2012-04-14 - Dan Denning
- Bracing for a Greek Exit
- The Wrecks and Smash-Ups Damaging Europe’s Economy
- Germany Tip-Toes Toward a Euro Exit
- What the News on Bond Yields Say About the “Resolved” Eurozone Crisis
- Say You Want a Revolution?
About the Author
Eric J. Fry has been a specialist in international equities since the early 1980s. He was a professional portfolio manager for more than 10 years, specializing in international investment strategies and short- selling. Mr. Fry launched the sometimes-abrasive, mostly entertaining and always insightful Rude Awakening.