Crumbling (Euro)land – By Andrew Stuttaford – The Corner – National Review Online

And thusly a credit crisis becomes a sovereign debt crisis becomes a currency crisis:

A bizarre money-go-round has developed, which works something like this. Fearing crippling property losses and a possible exit from the euro, the Spanish depositor removes his money from Spain and places it in an apparently “safe” German bank account. But unable to invest these inflows safely, the German bank places the money on deposit with the Bundesbank. Denied access to market funding, the Spanish bank taps the European Central Bank for the money instead, which in turn uses the excess liquidity building up at the Bundesbank. It’s unclear where the ultimate liability would lie in the event of default and/or exit from monetary union, but in all likelihood with the German taxpayer.

via Crumbling (Euro)land – By Andrew Stuttaford – The Corner – National Review Online.

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