How does he work this out? A key element is the Target 2 balances. Target 2 is the system for clearing payments within euro zone central banks. When a Greek depositor sends money to a German bank, the deal would be settled within Target 2. The Bundesbank ends up with a claim on the assets of the ECB; the Greek central bank with a liability. Since 2007, the German claim on the ECB has been steadily rising, while most other members have gone into deficit.
The Target 2 numbers, then, show the extent to which countries are becoming dependent on official financing. By subtracting the Target 2 flows from the balance of payments data, King calculates the extent of private sector flight. Spain was doing fine until last year, since when 100 billion euros, or 10% of GDP, has left the country; the 160 billion euro figure for Italy is also around 10% of GDP. While domestic bank depositors have kept their money at home, foreign deposits have been withdrawn. In Italy, foreigners have reduced their holdings of government bonds from 828 billion euros to 730 billion; in Spain from 240 billion euros to 200 billion. Foreign investors have also been selling Spanish mortgage-backed securities.
How do the numbers compare with the periphery? Foreign bank deposits have fallen 64% in Greece, 55% in Ireland and 37% in Portugal; in Italy, the fall is 34% and Spain 13%. Foreign government bond holdings have dropped 56% in Greece, 18% in Ireland and 25% in Portugal; in Italy the fall is 12% and Spain 18%. So if Italy and Spain were to move to the average for the other three, a further 200 billion euros would flow out.
A final thought. This is another example of the nationalisation of markets, in which official flows are steadily replacing private sector capital. It is a trend that seems unstoppable.