Monday, May 14, 2012

Spanish crisis, corralito and protecting your savings

Entre corridas bancarias y más ajuste, el temor a un corralito invade España
Hi Fernando, greetings from Barcelona,
I’m been a long time reader of your blog, it’s funny to write to you in English but I guess it’s more convenient for you.
I’d like to have your opinion on two related subjects,
- first, the chances of a corralito happening in Spain and what “signals” we could watch for in order to see it coming.
Most probably there is a correlation between this and Spain leaving the eurozone.
- second, what measures would you take to secure your money, ie to protect it against a corralito,
1. keeping physical money at home aka “bancolchon”. I mean not only emergency money but actually a good share of your savings.
I think you went through something very similar in Argentina with the dollars. Apart from the obvious disadvantages, like being stolen or
depreciation, if Spain left the euro zone I wonder how you would manage to keep and use this amount of metallic. ie imagine go back
to the peseta and the goverment issues a law to make all citizen convert their euros within a deadline. If you’re not willing to change it,
now you have the triple problem of: keeping it, using it, moving it.
Some people advices collecting euro notes whose serial begins with X (issued by Germany) and getting rid of the rest, those with V are
issued by Spain. The justification for this is that again, if we go back to pesetas, those X-notes could be changed in Germany. I’m not
so sure about this but if you do it it doesn’t hurt your chances either.
2. buying gold, silver, etc.
3. opening a non-resident account in another country.
Countries like Germany or Switzerland seem good choices. ie. swissquote has good references and it seems you can open a deposit
account there from internet, it’s an online bank. Maybe I’m a bit paranoid here, but in the event of EU breakdown, I’m not sure if this account
would be safe from the goverment’s measures – either the Spanish or the Swiss / German / etc.,
(I’m not being very specific here but I hope you know what I mean).
4. stock options, invest funds, bonds, etc.
The advantage here – correct me if I’m wrong – would be that in the case of a corralito you’re assets run much less risk of being seized.
For the moment I only I’ve some emergency money at home, but all the rest is in a Spanish bank account. There’re many different opinions
mixed with some justified paranoia, I want to make a no nonsese assesment of the situation and take preventive measures, I’d really appreciate
your take on this.
Thanks in advance,

Hi! I have family in Barcelona and go there often. Unfortunately its been degrading considerably in the last few years, one of the reasons why I didn’t end up there myself.
As you suspect already, there are chances of a corralito or something similar taking place in Spain, and its not just me saying it, its Economy Nobel Paul Krugman saying it.
What are the chances of this happening first in Greece and then in Spain? Significant enough that you should take action. Spain is already devaluating via reduction of salaries but its just not enough, eventually they will have to do something, and the big players already moved their money out. Once again, it’s the low and medium class which will get hurt the most.  So going to your first question:
first, the chances of a corralito happening in Spain and what “signals” we could watch for in order to see it coming. Most probably there is a correlation between this and Spain leaving the eurozone.
The signals are everything you’ve been seeing for the last few years, the crisis all around you is textbook, almost a copy of what happened in Argentina in 2001. High unemployment, increase of poverty, reduction of the standards of living, increased  taxations, impossible debt and a construction bubble that burst leaving the country in awful financial shape.  Finally, you have a currency such as the Euro, which can easily flee the country. This is a key point because it indicates that when the time comes a corralito must be enforced to keep everyone from running from the sinking ship.  You no longer have to worry about seeing these signs or not, but you should be worried about getting hurt as little as possible when it happens. About the second part of your question, yes I believe its very likely to end up detaching from the Eurozone and only the stronger player remaining within the EU, or maybe turned into an Eurozone Grade A and B, so as to protect the countries that are still afloat from going down with the ones that are sinking. A worst case scenario would be a total disintegration of the EU, but I believe they will try to avoid it as much as possible.
- second, what measures would you take to secure your money, ie to protect it against a corralito,
It will depend mostly on how much money you have. Banks in Spain simply aren’t safe for you, so any money in it is at risk. I would have at least a month worth of expenses in cash at hand, in Euros. This you will need during the first weeks. If Spain goes Argentina December 19th 2001, it will not be pretty, so also stock up on the basics so often mentioned here in my blog, not forgetting about food, water, any medications you may need, some tool for self defense, hopefully a firearm which you can legally own in Spain. I know that what you are looking at today is of concern, and I’m not trying to be a jerk but the worst is yet to come. You will have to learn to fend for yourself in terms of security because the Spain of the future will be more dangerous than the one you know now.
If you have more money then you have to think what to do with it. A percentage of it will be safe in precious metals, if you have more or if you want to diversify your assets and a trip to Switzerland is a good idea. No doubt that’s what many rich did already. Stocks would be safe in theory, but given their volatile nature I don’t feel comfortable with them, especially for economic disaster planning.
The “Bancolchon” (matress bank) is viable but up to a certain amount of cash. Say you have a pile of Euros under the mattress today, and tomorrow they bring back the peseta which you have a limited time to exchange  your Euros for at a disadvantage rate, then your cash isn’t protecting you much. In this case money in precious metals or in a foreign account is safe until the dust settles and you can later exchange for whatever currency or rate becomes standard. You have a point about Swiss banks throwing Spain and Greece citizens under the train if the governments ask for their citizen´s information. You would have to go looking to Panama or Singapore for off shore banking. In spite of this possibility having at least the money outside Spain would protect you from the imminent effects of the corralito.
I´d stop looking for signs, they are all already there, and do what you can to protect your assets right now. The situation in Spain is bad and will keep getting worse. The only question is how bad will it get for the rest of Europe and how long can they keep the EU together.
Join the forum discussion on this post!


Loophole said...

The big question I have is how quickly collapses such as we are thinking about here can become worldwide.

I live in the US, and I don't like what I see happening here, either.

Almost anything can trigger a riot. It can be a natural disaster like Katrina or mobs just "celebrating" their team winning a championship. We have flash mobs forming after a Twitter message goes out. In England last year, mobs went into prosperous districts and trashing them.

Disaster scenarios abound: terrorism, war, financial collapse, hyperinflation, etc. This is not conspiracy stuff.

gaga said...

Rather than Switzerland, most Euro money is heading for London, specifically property. This is because its considered stable, outside the Eurozone but inside the EU. EU members can live and work there and even become citizens.
Switzerland doesn't want you as a citizen or you to work there and its shockingly expensive. Beautiful but boring as hell.

Anonymous said...

France!! retire at 58, get 7 plus weeks a year vacation, free health care... What could go wrong?

Anonymous said...

About that trip to Switzerland bear in mind that you can legally transport only less than 10.000 EUR in cash over the border of EU member states, for higher sums you must declare the transport of money or face steep fines and possible confiscation of undeclared money you have whit you.
If things go from bad to worse expect that borders between EU member states (fairly open at the moment) will get more and more controlled.
Switzerland in not an EU member and they still have the "classic" border checkpoints. There they can ask you if you carry cash (less than 10.000 EUR or precious metals, stocks...)and you must comply and reveal fund you are transporting. If you have more than 10.000 EUR than you MUST declare it.
I found a page explaining it, but it is in German:
Oh yes almost forgot - countries HATE the fact that "common people" would like to protect their savings in Switzerland, so not only they are pressing Switzerland to abolish their banking secrecy laws (at least for non Swiss citizens), but they are taking active measures to find out who could possibly be moving cash to safety. Italy has installed cameras in civil cars that record license plates on cars entering Switzerland from Italy.

Anonymous said...

Just a note about quoting Krugman: he is the same sort of keynesian that promotes all of the things that have put nations into debt and on the brink of collapse. He also is of the false belief that argentina has a booming economy now and everything is great there. He frequently lies, like stating repeatedly in his column over the years that the Fed created a housing bubble, but then just recently claiming on Bloomberg that it did not.

Lastly, Krugman won his nobel prize in something that had zero to do with monetary econ -- I believe it was geography related econ. He can be right sometimes, but he is wrong an awful lot. He wanted the stimulus plans in the US and was surprised they did not work, and now wants the government to spend even more despite already being 16 trillion in debt.

He agrees with what the President of your former country is doing economically, if that is any indication of his knowledge.