On euro weakness and capital flight out of the euro zone

The large increases in Target2 imbalances at the heart of the euro zone's banking system are widely considered not just a risk to national governments in the event of a eurozone breakup, but also a sign of capital flight.  We have seen the definitive proof that bank deposits are leaving Greek banks,winding up in German institutions. In my view, this is the real risk for the eurozone. But the risk could also be for the euro zone as a whole and the question is how to identify evidence that a run on the euro has begun.

For full coverage of why the bank run issue exists, see my weekly post from June 29 on the EuroTARP. Now, the issue is capital flight from the euro altogether.

Here is the case Marshall Auerback put to me when we were discussing the Spanish bank situation. He said t...

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