Watch Live: The Washington Ideas Forum 2014

This Might Be the Dumbest Thing Europe Has Done Yet

BankiaRun3.jpg
(Reuters)

It's almost as if Europe is trying to start a bank run.

Rather impressively, the botched bailout of Spain's banks wasn't even the most incompetent thing Europe's officials did on Monday. That honor goes to the guys who admitted that they have talked about instituting capital controls if Greece actually does exit the euro zone. Meaning: Europe will prevent people from moving their money across national borders -- and perhaps even from withdrawing it from ATMs -- if eurogeddon hits.

The first rule of capital controls is: Don't talk about capital controls. The second rule of capital controls is: Just do them -- secretly. Talking about them beforehand only broadcasts to everyone in Europe's periphery that they should move their money to a German bank ASAP, as otherwise their euros could soon turn into pesetas or lira. Of course, if people start pulling their money out of their home banks en masse, the only solution might be capital controls ...

In other words, talking about capital controls can set off a continental bank run that makes capital controls necessary.

That gives me a chance to resurrect one of my favorite euro-doom graphs. The chart below from the Institute of Empirical Economic Research at the University of Osnabrück shows how much countries owe or are owed by the ECB. It's a good proxy for how much capital flight there's been out of Europe's troubled economies. That blue line at the top is Germany. The orange and purple lines at the bottom? Spain and Italy.

TARGET2-3.png
If Europe wanted to guarantee that the Spanish bailout would fail, and accelerate the onset of the seemingly inevitable Italian bailout, they could hardly do worse than to start talking publicly about capital controls.

It's uncanny. They never miss a chance to do the wrong thing at the exact wrong moment.
Presented by

Matthew O'Brien

Matthew O'Brien is a former senior associate editor at The Atlantic.

Things Not to Say to a Pregnant Woman

You don't have to tell her how big she is. You don't need to touch her belly.

Join the Discussion

After you comment, click Post. If you’re not already logged in you will be asked to log in or register.

blog comments powered by Disqus

Video

Things Not to Say to a Pregnant Woman

You don't have to tell her how big she is. You don't need to touch her belly.

Video

Maine's Underground Street Art

"Graffiti is the farthest thing from anarchy."

Video

The Joy of Running in a Beautiful Place

A love letter to California's Marin Headlands

Video

'I Didn't Even Know What I Was Going Through'

A 17-year-old describes his struggles with depression.

Video

Google Street View, Transformed Into a Tiny Planet

A 360-degree tour of our world, made entirely from Google's panoramas

Video

The Farmer Who Won't Quit

A filmmaker returns to his hometown to profile the patriarch of a family farm

Video

Riding Unicycles in a Cave

"If you fall down and break your leg, there's no way out."

Video

Carrot: A Pitch-Perfect Satire of Tech

"It's not just a vegetable. It's what a vegetable should be."

More in Business

Just In