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 country’s exceptionally thin safety net prompts residents—especially those with less-steady employment—to view partnership in more economic terms.
Over the last several decades, the proportion of Americans who get married has greatly diminished—a development known as well to those who lament marriage’s decline as those who take issue with it as an institution. But a development that’s much newer is that the demographic now leading the shift away from tradition is Americans without college degrees—who just a few decades ago were much more likely to be married by the age of 30 than college graduates were.
Today, though, just over half of women in their early 40s with a high-school degree or less education are married, compared to three-quarters of women with a bachelor’s degree; in the 1970s, there was barely a difference. The marriage gap for men has changed less over the years, but there the trend lines have flipped too: Twenty-five percent of men with high-school degrees or less education have never married, compared to 23 percent of men with bachelor’s degrees and 14 percent of those with advanced degrees. Meanwhile, divorce rates have continued to rise among the less educated, while staying more or less steady for college graduates in recent decades.
A best-selling author submits a draft to his editor. Hijinks ensue.
I had written five books for Scott Moyers, following him as he moved from editing jobs at Scribner’s to Random House and then to Penguin Press. We worked well together, and in part thanks to his strong editing hand, my last three books had been bestsellers.
So what happened when I finished years of work and sent him the manuscript of my sixth book stunned me. In fact, I was in for a series of surprises.
They began about 18 months ago, after I emailed to him that manuscript, a dual appreciation of Winston Churchill and George Orwell. When I had begun work on it, in 2013, some old friends of mine thought the subject was a bit obscure. Why would anyone care how two long-dead Englishmen, a conservative politician and a socialist journalist who never met, had dealt with the polarized political turmoil of the 1930s and the world war that followed? By 2016, as people on both the American left and right increasingly seemed to favor opinion over fact, the book had become more timely.
More comfortable online than out partying, post-Millennials are safer, physically, than adolescents have ever been. But they’re on the brink of a mental-health crisis.
One day last summer, around noon, I called Athena, a 13-year-old who lives in Houston, Texas. She answered her phone—she’s had an iPhone since she was 11—sounding as if she’d just woken up. We chatted about her favorite songs and TV shows, and I asked her what she likes to do with her friends. “We go to the mall,” she said. “Do your parents drop you off?,” I asked, recalling my own middle-school days, in the 1980s, when I’d enjoy a few parent-free hours shopping with my friends. “No—I go with my family,” she replied. “We’ll go with my mom and brothers and walk a little behind them. I just have to tell my mom where we’re going. I have to check in every hour or every 30 minutes.”
Those mall trips are infrequent—about once a month. More often, Athena and her friends spend time together on their phones, unchaperoned. Unlike the teens of my generation, who might have spent an evening tying up the family landline with gossip, they talk on Snapchat, the smartphone app that allows users to send pictures and videos that quickly disappear. They make sure to keep up their Snapstreaks, which show how many days in a row they have Snapchatted with each other. Sometimes they save screenshots of particularly ridiculous pictures of friends. “It’s good blackmail,” Athena said. (Because she’s a minor, I’m not using her real name.) She told me she’d spent most of the summer hanging out alone in her room with her phone. That’s just the way her generation is, she said. “We didn’t have a choice to know any life without iPads or iPhones. I think we like our phones more than we like actual people.”
Memorials to the Lost Cause have always meant something sinister for the descendants of enslaved people.
For most of my life I didn’t know Confederate statues could come down.
Throughout my childhood, those equestrian statues of victory, obelisks, and granite figures of soldiers were as immovable and immutable as the hills and the lakes. Other symbols of the South as it was before 1865 were also part of the fabric of reality. Old battle flags were inevitabilities, waving in the wind. Plantations might as well have been wonders of the world, and old battlefields holy places. Part of living in the South, just as much as eating and breathing were, was partaking in a perpetual reenactment.
In my hometown of Rocky Mount, North Carolina, we have our own little shrine to the Confederacy. The Nash County Confederate Monument is a column with one soldier standing atop its apex, surrounded by four shorter empty columns.The base is engraved with two rifles crossed.
“Seeing a partial eclipse bears the same relation to seeing a total eclipse as kissing a man does to marrying him.”
Ever since it was first published in 1982, readers—including this one—have thrilled to “Total Eclipse,” Annie Dillard’s masterpiece of literary nonfiction, which describes her personal experience of a solar eclipse in Washington State. It first appeared in Dillard’s landmark collection, Teaching a Stone to Talk, and was recently republished in The Abundance, a new anthology of her work. The Atlantic is pleased to offer the essay in full, here, until the end of August.
It had been like dying, that sliding down the mountain pass. It had been like the death of someone, irrational, that sliding down the mountain pass and into the region of dread. It was like slipping into fever, or falling down that hole in sleep from which you wake yourself whimpering. We had crossed the mountains that day, and now we were in a strange place—a hotel in central Washington, in a town near Yakima. The eclipse we had traveled here to see would occur early in the next morning.
“If you think strong statements or mere pressure from the U.S. will be sufficient to really convince Pakistan to change its calculus, that is like really living in a fool’s paradise.”
“We can no longer be silent about Pakistan’s safe havens for terrorist organizations, the Taliban, and other groups that pose a threat to the region and beyond,” said President Trump in a Monday night speech outlining his new strategy for the war in Afghanistan. With those words, he gave perhaps the strongest public criticism by a U.S. president of Pakistan’s policy in that war, but also echoed a widely held view among U.S. national-security experts. “Pakistan has much to gain from partnering with our effort in Afghanistan. It has much to lose by continuing to harbor terrorists.”
But Pakistan itself has been the victim of several high-profile terrorist attacks in recent years, and its government quickly declared the remarks about safe havens part of a “false narrative,” insisting that “No country in the world has suffered more than Pakistan from the scourge of terrorism. ... It is, therefore disappointing that the US policy statement ignores the enormous sacrifices rendered by the Pakistani nation in this effort.”
The nation’s current post-truth moment is the ultimate expression of mind-sets that have made America exceptional throughout its history.
When did America become untethered from reality?
I first noticed our national lurch toward fantasy in 2004, after President George W. Bush’s political mastermind, Karl Rove, came up with the remarkable phrase reality-based community. People in “the reality-based community,” he told a reporter, “believe that solutions emerge from your judicious study of discernible reality … That’s not the way the world really works anymore.” A year later, The Colbert Report went on the air. In the first few minutes of the first episode, Stephen Colbert, playing his right-wing-populist commentator character, performed a feature called “The Word.” His first selection: truthiness. “Now, I’m sure some of the ‘word police,’ the ‘wordinistas’ over at Webster’s, are gonna say, ‘Hey, that’s not a word!’ Well, anybody who knows me knows that I’m no fan of dictionaries or reference books.
Three Atlantic staffers discuss “Beyond the Wall,” the sixth episode of the seventh season.
Every week for the seventh season of Game of Thrones, three Atlantic staffers will discuss new episodes of the HBO drama. Because no screeners were made available to critics in advance this year, we'll be posting our thoughts in installments.
In keeping with his non-confrontational approach, the House speaker offered the gentlest of criticism during a CNN town hall for the president’s response to the violence in Charlottesville.
Paul Ryanwill distance himself from the president. He’ll occasionally offer some polite and always constructive criticism of Trump’s most egregious tweets and statements. But the Republican House speaker will not do battle with a man who, as of about a year and a half ago, he wanted to see anywhere but the Oval Office.
That was the main, not-particularly-surprising takeaway from Ryan’s CNN town hall on Monday night, an event that Trump upstaged with his last-minute decision to deliver an address to the nation on Afghanistan. Held in the speaker’s Wisconsin congressional district, the town hall was ostensibly an opportunity for Ryan to talk up tax reform and remind constituents and the nation at large that House Republicans—if not their counterparts in the Senate—have been more productive this year than the media has given them credit for.
In recent decades higher-education institutions have tried to lure students with extravagant amenities, but some are finding that these attempts can actually threaten enrollment and retention.
When I was a college freshman in the early 1990s, I lived in a dorm that was as sterile as a hospital room, a 193-square-foot box with white cinderblock walls that I shared with two other guys. The bathroom was also shared—with an entire floor.
Such basic living quarters greeted generations of college students before me. For much of the history of American higher education, dorms and other student amenities—from dining halls to recreational centers—were an afterthought to the primary business of campus planning: grand academic buildings. In fact, in the 1840s, the president of Brown University described dorm life as “unnatural” and blamed student housing for most of the evils of college life. Brown and Columbia University even attempted to eliminate dorms from their campuses. While that move ultimately proved unsuccessful, student housing and other facilities that supported student life on most campuses remained a fairly spartan experience up until the 1990s.