The country's slow-motion bank run could end the euro -- if the ECB lets it.
Bank runs usually have one speed: all-out-sprinting. But today, the Greeks are jogging.
There's been a quiet bank run in Greece the past three years. Since 2009, Greek banks have lost somewhere between 25 and 30 percent of their deposits. That's actually surprisingly low considering that a euro in a Greek bank doesn't look like it's worth as much as a euro in a German bank. The calculus is simple. Greece might turn its euros into cheaper drachmas and Germany won't. Why wouldn't more Greek people move their money to be safe?
Increasingly, they are. On Monday and Tuesday alone, Greeks withdrew over €1.2 billion ($1.53 billion). That's roughly 0.75 percent of remaining Greek deposits. This still-gradual bank run -- what FT Alphaville's Joseph Cotterill calls a "bank jog" -- is accelerating because Greek politics is making a Greek exit look more imminent.
It is a classic case of self-fulfilling economic expectations. Greeks are nervous about leaving the euro. The nervousness leads to a bank run. A bank run increases the chance that Greece will have to leave the euro. Which makes people more nervous. And around we go.
GOOD NIGHT, EURO
As Greek banks lose deposits, they need new sources of funding. But they can't raise money from markets. That leaves the ECB. The ECB has so far been a reluctant lender-of-last-resort, but it has been a lender-of-last-resort -- for banks, if not countries. The Cliff Notes version is that the ECB has kept Greek banks afloat by giving them money in exchange for collateral.* Warning bells might be going off. If Greek banks have good collateral, why can't they use it to get private loans? The answer is that they don't have good collateral. In other words, if Greece defaults and exits, the ECB will be stuck holding a bag of mostly worthless pieces of paper.
How big is the problem? Let's take a look under the hood of the ECB. The below chart courtesy of Scotty Barber shows so-called TARGET2 balances. It's a bit technical, but TARGET2 shows how much countries owe or are owed by the ECB. That's more or less a decent proxy for where deposits are moving from and to within the euro zone.
A Greek default would effectively cost the ECB roughly €100 billion ($127 billion), to be split between the remaining euro zone members.
Here's how this could push Greek out of the euro zone. Greek banks are running out of collateral. Even bad collateral. All they have is really bad collateral. As the bank jog speeds up, they need to get more and more money from the ECB. But they might not have good enough collateral to get it. The ECB can change its rules and accept dodgier collateral -- but that would open the ECB up to even bigger losses down the line, assuming a Greek exit is inevitable.
If the ECB says no, then the jig would be up for Greece. Its banks would run out of money. That's when the bank jog would turn into a full-fledged run and then a sprint -- if it hadn't already. Of course, when banks don't have money, nobody has money. The Greek government wouldn't have a choice: It would have to start printing new drachmas. Good night, euro.
AFTER GREECE ...
The damage won't stop there. Take a look at the TARGET2 balances again. Italian and Spanish banks are even more dependent on ECB funding than Greece. Already, there are signs of a bank racewalk going on among them. If the ECB cut the cord on Greece, Italian and Spanish depositors would frantically move their euros to German banks to protect themselves against the same fate. This deposit drain would eventually push them into the same collateral bind. The ECB would have to dramatically reverse itself to save the common currency.
Let's take a step back for a minute. The world of TARGET2 balances can be something of a rabbit hole, but there are two big takeaways here. First, the Greek bank jog will put more pressure on the ECB to do more. It will have to decide again whether or not to boot Greece from the euro zone. And second, a Greek exit would be a mess for Italy and Spain regardless of whether Greek politicians or the ECB makes the move.
It's hard to imagine the ECB pulling the plug on Greece anytime soon. Europe doesn't have anywhere near the bailout fund it needs ready, nor a consensus on euro bonds, nor on more aggressive ECB action. But the longer the ECB keeps Greek, Italian, and Spanish banks on life support, the greater the final cost if one of them exits -- and the greater the panic will hit the other countries in that event. The danger is that the ECB will lose its nerve -- that it will worry about potential future losses. That's what Bundesbank chief Jens Weidmann fretted over a few months back. That could become a self-fulfilling prophesy.
The biggest thing Europe has to fear is ECB fear of a euro breakup.
* It's a bit more complicated than that. There are two ways banks effectively get money from the ECB. They can either pledge collateral to the ECB directly, or pledge collateral to their national central banks. The benefit of the latter option -- so-called Emergency Liquidity Assistance (ELA) -- is that banks can use worse collateral. Still, the ECB has to okay the collateral. ELA are technically liabilities of each individual country, but if a country defaulted and left the euro zone, the ECB would be on the hook. Joseph Cotterill has a good summary of ECB versus ELA liquidity in Greece.
The Islamic State is no mere collection of psychopaths. It is a religious group with carefully considered beliefs, among them that it is a key agent of the coming apocalypse. Here’s what that means for its strategy—and for how to stop it.
What is the Islamic State?
Where did it come from, and what are its intentions? The simplicity of these questions can be deceiving, and few Western leaders seem to know the answers. In December, The New York Times published confidential comments by Major General Michael K. Nagata, the Special Operations commander for the United States in the Middle East, admitting that he had hardly begun figuring out the Islamic State’s appeal. “We have not defeated the idea,” he said. “We do not even understand the idea.” In the past year, President Obama has referred to the Islamic State, variously, as “not Islamic” and as al-Qaeda’s “jayvee team,” statements that reflected confusion about the group, and may have contributed to significant strategic errors.
The competition is fierce, the key players are billionaires, but the path—and even the destination—remains uncertain.
The race to bring driverless cars to the masses is only just beginning, but already it is a fight for the ages. The competition is fierce, secretive, and elite. It pits Apple against Google against Tesla against Uber: all titans of Silicon Valley, in many ways as enigmatic as they are revered.
As these technology giants zero in on the car industry, global automakers are being forced to dramatically rethink what it means to build a vehicle for the first time in a century. Aspects of this race evoke several pivotal moments in technological history: the construction of railroads, the dawn of electric light, the birth of the automobile, the beginning of aviation. There’s no precedent for what engineers are trying to build now, and no single blueprint for how to build it.
Without the financial support that many white families can provide, minority young people have to continually make sacrifices that set them back.
The year after my father died, I graduated from grad school, got a new job, and looked forward to saving for a down payment on my first home, a dream I had always had, but found lofty. I pulled up a blank spreadsheet and made a line item called “House Fund.”
That same week I got a call from my mom—she was struggling to pay off my dad’s funeral expenses. I looked at my “House Fund” and sighed. Then I deleted it and typed the words “Funeral Fund” instead.
My father’s passing was unexpected. And so was the financial burden that came with it.
For many Millennials of color, these sorts of trade-offs aren’t an anomaly. During key times in their lives when they should be building assets, they’re spending money on basic necessities and often helping out family. Their financial future is a rocky one, and much of it comes down to how much—or how little—assistance they receive.
In the name of emotional well-being, college students are increasingly demanding protection from words and ideas they don’t like. Here’s why that’s disastrous for education—and mental health.
Something strange is happening at America’s colleges and universities. A movement is arising, undirected and driven largely by students, to scrub campuses clean of words, ideas, and subjects that might cause discomfort or give offense. Last December, Jeannie Suk wrote in an online article for The New Yorker about law students asking her fellow professors at Harvard not to teach rape law—or, in one case, even use the word violate (as in “that violates the law”) lest it cause students distress. In February, Laura Kipnis, a professor at Northwestern University, wrote an essay in The Chronicle of Higher Education describing a new campus politics of sexual paranoia—and was then subjected to a long investigation after students who were offended by the article and by a tweet she’d sent filed Title IX complaints against her. In June, a professor protecting himself with a pseudonym wrote an essay for Vox describing how gingerly he now has to teach. “I’m a Liberal Professor, and My Liberal Students Terrify Me,” the headline said. A number of popular comedians, including Chris Rock, have stopped performing on college campuses (see Caitlin Flanagan’s article in this month’s issue). Jerry Seinfeld and Bill Maher have publicly condemned the oversensitivity of college students, saying too many of them can’t take a joke.
A black student posted “White Only” signs on water fountains to highlight systemic racism—and provoked an uproar.
In the middle of September, students arrived on campus at the State University of New York at Buffalo to find “White Only” and “Black Only” signs plastered near elevators, water fountains, benches, and bathrooms. It was not immediately clear who put up the signs. But they summoned an era when segregation on the basis of skin color was the law of the land.
The backlash—on campus and across social media—was swift. The incident touched off a tense debate over racism and free speech that is still unfolding more than two months after the signs were taken down.
Ashley Powell, a black graduate student, created the signs as part of a project for a class offered by the Art Department. She says that reaction was exactly the point. “The signs are a reminder that just because you can’t see racism around you doesn’t mean it’s not there,” Powell said in an interview. “I wanted people to feel something. I wanted people to realize they must confront racism and fight against it in their daily lives.”
The generation has been called lazy, entitled, and narcissistic. Their bosses beg to differ.
Yes, many Millennials are still crashing on their parent’s couches. And there’s data to support the claim that they generally want more perks but less face time, and that they hope to rise quickly but don’t stick around for very long. Millennials have also been pretty vocal about their desire to have more flexible jobs and more leave time.
But does all of this mean that all Millennials are actually worse workers?
Laura Olin, a digital campaigner who ran social-media strategy for President Obama’s 2012 campaign, says that’s not been her experience. “You always hear about Millennials supposedly being entitled and needing coddling, but the ones I’ve encountered have been incredibly hard-working and recognize that they need to pay their dues.”
The cards Overweight Haters Ltd. is handing out to passengers on the Tube aren’t just cruel; they’re ineffective.
They come every year around this time, as reliably as the chilling of the air and the preponderance of red coffee cups: the public-relations pitches, bedecked in exclamation points and cheer, offering expert tips on how to fight the holiday weight, or win the battle of the bulge, or stay svelte through New Year’s. If I had a nickel for every email in my inbox right now exhorting me to put down the pie, I’d have enough money to buy myself several more pies. Not the grocery-store brand, either. The fancy bakery kind.
‘Tis the season, in other words, to make some strangers feel bad about their bodies. Over the weekend, some people in London, purportedly from a group called Overweight Haters Ltd., took that to heart:
Maya Arulpragasam is a famous rapper, singer, designer, producer, and refugee. When she was 9, her mother and siblings fled violence in Sri Lanka and came to London, and the experience was formative for her art. As she explained to The Guardian in 2005 after the release of her debut Arular, “I was a refugee because of war and now I have a voice in a time when war is the most invested thing on the planet. What I thought I should do with this record is make every refugee kid that came over after me have something to feel good about. Take everybody’s bad bits and say, ‘Actually, they’re good bits. Now whatcha gonna do?’”
That goal—to glorify people and practices that the developed world marginalizes—has been a constant in her career. Her new music video tackles it in a particularly literal and urgent way, not only by showing solidarity with refugees at a moment when they’re extremely controversial in the West, but also by posing a simple question to listeners: Whose lives do you value?
An entire industry has been built on the premise that creating gourmet meals at home is simple and effortless. But it isn’t true.
I write about food for a living. Because of this, I spend more time than the average American surrounded by cooking advice and recipes. I’m also a mother, which means more often than not, when I return from work 15 minutes before bedtime, I end up feeding my 1-year-old son squares of peanut-butter toast because there was nothing in the fridge capable of being transformed into a wholesome, homemade toddler meal in a matter of minutes. Every day, when I head to my office after a nourishing breakfast of smashed blueberries or oatmeal I found stuck to the pan, and open a glossy new cookbook, check my RSS feed, or page through a stack of magazines, I’m confronted by an impenetrable wall of unimaginable cooking projects, just sitting there pretending to be totally reasonable meals. Homemade beef barbacoa tacos. Short-rib potpie. “Weekday” French toast. Make-ahead coconut cake. They might as well be skyscraper blueprints, so improbable is the possibility that I will begin making my own nut butters, baking my own sandwich bread, or turning that fall farmer’s market bounty into jars of homemade applesauce.
To solve climate change, we need to reimagine our entire relationship to the nonhuman world.
Humans were once a fairly average species of large mammals, living off the land with little effect on it. But in recent millennia, our relationship with the natural world has changed as dramatically as our perception of it.
There are now more than 7 billion people on this planet, drinking its water, eating its plants and animals, and mining its raw materials to build and power our tools. These everyday activities might seem trivial from the perspective of any one individual, but aggregated together they promise to leave lasting imprints on the Earth. Human power is now geological in scope—and if we are to avoid making a mess of this, our only home, our politics must catch up.
Making this shift will require a radical change in how we think about our relationship to the natural world. That may sound like cause for despair. After all, many people refuse to admit that environmental crises like climate change exist at all. But as Jedediah Purdy reminds us in his dazzling new book, After Nature, our relationship with the nonhuman world has proved flexible over time. People have imagined nature in a great many ways across history.