Comments on: Policymakers Powerless to Stem Capital Flight from Spain http://blog.alliancebernstein.com/index.php/2012/09/06/policymakers-powerless-to-stem-capital-flight-from-spain/?utm_source=rss&utm_medium=rss&utm_campaign=policymakers-powerless-to-stem-capital-flight-from-spain The AllianceBernstein Blog on Investing Wed, 22 May 2013 07:20:14 +0000 hourly 1 http://wordpress.org/?v=3.4.1 By: Thomas Rekdal http://blog.alliancebernstein.com/index.php/2012/09/06/policymakers-powerless-to-stem-capital-flight-from-spain/#comment-16396 Thomas Rekdal Thu, 06 Sep 2012 22:54:18 +0000 http://blog.alliancebernstein.com/?p=2657#comment-16396 An excellent analysis. But I would add one point. It seems to me that those who argue that the weaker members of the Eurozone could improve their competitiveness by exiting the Euro and devaluing their currency are contributing to a deadly "bank run psychology." If you lived in one of these countries, and anticipated losing half or more of your savings through such a devaluation, would you not move your money? European policy makers obviously must do something to counter the spread of this fear. A promise of endless bailouts does not seem either believable or feasible. But perhaps it would be possible to make defaults within the Eurozone (if it comes to that) more credible than exits from the Eurozone. An excellent analysis. But I would add one point. It seems to me that those who argue that the weaker members of the Eurozone could improve their competitiveness by exiting the Euro and devaluing their currency are contributing to a deadly “bank run psychology.” If you lived in one of these countries, and anticipated losing half or more of your savings through such a devaluation, would you not move your money?

European policy makers obviously must do something to counter the spread of this fear. A promise of endless bailouts does not seem either believable or feasible. But perhaps it would be possible to make defaults within the Eurozone (if it comes to that) more credible than exits from the Eurozone.

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