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Discussion Paper
Capital Flight inside the Euro Area: Cooling Off a Fire Sale
Countries in the euro area periphery such as Greece, Italy, Portugal, and Spain saw large-scale capital flight in 2011 and the first half of 2012. While events unfolded much like a balance of payments crisis, the contraction in domestic credit was less severe than would ordinarily be caused by capital flight of this scale. Why was that? An important reason is that much of the capital flight was financed by credits to deficit countries? central banks, with those credits extended collectively by other central banks in the euro area. This balance of payments financing was paired with policies to ...