Bank of France debts jump tenfold on capital flight
The Bank of France faces surging debts to Germany’s Bundesbank and fellow central banks in the EMU system as foreign investors pull large sums out of French accounts.
By Ambrose Evans-Pritchard
06 Dec 2011
French lenders lost €100bn (£86bn) in short-term deposits in September alone, mostly due to precautionary moves by US money market funds and Asian investors afraid of France’s exposure to Italy. “There were huge net capital outflows,” said Eric Dor from the IESEG School of Management in Lille.
The effects of this capital flight are surfacing on the Bank of France’s books under the European Central Bank’s so-called “Target2” scheme, an ECB payment network that lets funds move automatically where needed.
Liabilities jumped suddenly in late July, rising from €10bn to €98bn by September. Ireland’s central bank owes €118bn, Spain’s €108bn and Italy’s €89bn.
The triple-trigger appears to have been a sudden drop in Club Med manufacturing orders, an ECB rate rise, and the EU’s July summit – which led to haircuts on Greek bondholders and battered faith in EMU sovereign debt.
Mr Dor said there had been an exodus from distressed states into German, Dutch and Luxembourg banks. This shows up in the Target2 data.