Fears mount that the eurozone debt crisis 'jog' could turn into a run on banks unless savers get better protection pot

Europe’s leaders are coming under increasing pressure to issue a eurozone-wide guarantee for savers’ cash over fears a slow motion European bank jog could accelerate into a run.
Wealthy savers and companies in the eurozone’s debt crisis nations have been pulling increasing amounts out of banks in their home nations, according to economists, in what has been called the bank jog.
The fear is that the slow jog of cash haemorrhaging from Greek and Spanish banks is undermining the further and nervous savers could turn it into a run.
Small savers and the wealthy, both private individuals and businesses, have withdrawn their deposits, transferring them to places they believe are safer - such as German banks or the London property market.
While scenes of a Northern-Rock style run with savers queuing outside branches to pull out cash have so far been avoided, both Spain and Greece have reported substantial increases in money being pulled out of banks.

The slow motion flight of deposits has come as savers and firms worry about not just banks' safety but also their countries’ continuing membership of the euro.
Greek depositors fearing what has been dubbed a Grexit – the phrase coined for a Greek exit from the euro – have been pulling billions of euros out of the nation’s banks.
Routes such as transferring assets to subsidiaries or private banks elsewhere are being used to move large amounts of money by international companies and the wealthy.
These methods are not open to ordinary citizens, but Greeks have been reported to be pulling out cash and stashing it away in case the currency falls out of the euro and returns to the drachma.
Many are also transferring any spare cash held in savings abroad to relatives or friends and asking them to hold on to it. One Greek living in London told This is Money that many of his compatriots have been regularly moving any money they can out of the country for some time.

European Central Bank figures show Greek deposits down by 17 per cent in the year to the end of March 2012, and in the ten days after the 6 May election, savers were reported to have pulled £3bn out of Greek banks.
Meanwhile, figures published by Spain’s central bank showed €97bn was pulled out of the country in the first three months of the year – around a 10th of the country’s GDP.
Stephanie Kretz, of private bank Lombard Odier, says that at the end of March, Greek overnight deposits were down 30% since June 2010, meaning that €30bn has left Greek banks in less than two years.
Meanwhile, over the same period of time, €119bn has exited the banking system of the PIIGS bloc as a whole (Portugal, Ireland, Italy, Greece and Spain). The chart from her research below shows that at the same time the deposits into perceived safer German and French banks have grown substantially.
She said: 'Runs on banks are typically the first symptoms of banking crises.'

One of the driving factors behind the bank jog is that while countries remain theoretically equal members of the eurozone, with government-backed savings compensation schemes, some nations look distinctly less safe than others.
European financial authorities have so far ducked calls for a central savings protection pot, meaning savers must rely on their individual governments to back the €100,000 EU-wide guarantee.
The European Commission announced plans today to roll out a new system to identify failing banks and push more responsibility onto share and bondholders rather than taxpayers. However, there was no mention of a single savings insurance fund, despite the current problems.
While economists say it is very difficult to say where the euros are going to, commentators suggest there is a growing trend of the wealthy moving funds offshore, or into what are considered to be safer nations' banks.
Even twitchy small savers are reported to have been taking cash out of banks in Greece and stashing it away on the basis that their euro notes will prove worth holding if the country ends up in a devalued new drachma.

What if a Grexit hits?

One of the problems exacerbating the bank jog phenomenon is the absence of any exit plan for countries in the euro.
The best guess is that if Greece does drop out, it would switch back to the drachma with some form of extended bank holiday period to aid the transfer over.
Some form of capital controls would be likely to be brought in, freezing assets and stopping people from withdrawing cash in euros from banks, or transferring it out of the country.
Existing euro notes in circulation would most likely remain as they are.
While different countries' euro notes do have an identifying mark, in the form of a letter before their serial number, they end up circulating around Europe and so cancelling Greek ones would be hugely impractical.
Greek savers currently benefit from the EU-wide €100,000 savings compensation guarantee, it is not known what would happen to this if Greece dropped out of the eurozone.

‘The worry among depositors is not just that their banks will go bust, it is also that their deposits in euros may overnight turn into a less valuable currency,’ a report in The Economist newspaper said on Friday.
So far, highly damaging scenes of people queuing outside branches to pull out their cash have not occurred, but there are fears that it would not take much for nervous savers to be spooked.
Meanwhile, the slow motion removal of cash is making problems worse for banks suffering a lack of capital.
The bank jog is seeing both firms and individuals shift funds.
Companies that are able to move cash out of a country such as Greece are taking advantage of their ability to bank it in what is seen as safer nations.
Meanwhile, the wealthy are moving as much as they can out of investments, savings and bank accounts at home and into accounts and assets in perceived stronger countries.
Those moving money in euros out of the troubled nations and into what are seen as safer eurozone countries do not even need to change currency.
But some are choosing to go further afield and even the prime Central London property market is being seen as a safe haven, with reports that wealthy foreign buyers are pushing through purchases to get their cash into British bricks and mortar.
Upmarket estate agent Knight Frank is one of those that says uncertainty has driven demand for London homes.
Liam Bailey, head of residential research, said: 'While it looks very much that the surge in Greek buyers has fallen off sharply since the beginning of the year – those who had the funds to buy have done so – we are now seeing a noticeable up-tick in interest from France, Italy, Spain and even German-based purchasers looking at the prime London market.'

One of the main problems with the bank jog has been identified by economists as the lack of a Eurozone-wide savings deposit protection scheme. 
The job of reassuring savers that their money is safe is typically done by a national savings deposit protection system, such as the UK’s Financial Services Compensation Scheme, which guarantees individual savers’ cash up to £85,000.
While the EU has European-wide savings protection guaranteeing deposits up to €100,000, it is backed by individual countries not by one single eurozone protection pot.

Who protects my savings?

UK, EU and EEA deposit protection was unified under the Deposit Guarantee Schemes Directive from the start of 2011.
This means there is a Europe-wide minimum of €100,000 protection per individual per bank, backed by national governments.

The current UK savings protection limit is £85,000, which is higher than the £80,000 equivalent of €100,000 at current exchange rates.

‘Such schemes are fine in normal times, but do not do much to reassure people that their deposits won’t be repaid in a different currency (or that their money will be safe if their own government cannot stand behind the scheme),’ says The Economist.

There have been calls for a common scheme to be set up to protect savers but the size and political complexity has so far prevented it.
Economists at bank Citigroup have suggested that a fund would need at least €154bn to €198bn pre-funded by banks, however, with the banking sector already strapped for cash this would have to come from Europe and ultimately individual nations.
And one of the biggest obstacles to backing savers cash with one giant eurozone pot is that politicians know that building a system that asks taxpayers in Germany, France, and perhaps even Britain, for more cash to support banks in overspending euro debt crisis countries may prove a tough sell.

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