An ac­cel­er­at­ing flight of de­posits from banks in four Eu­ro­pean coun­tries is jeop­ar­dis­ing the re­new­al of eco­nom­ic growth and un­der­min­ing a main tenet of the com­mon cur­ren­cy: an in­te­grat­ed fi­nan­cial sys­tem. The Bank of Eng­land are auc­tion­ing off fifty pound ban­knotes with rare se­r­i­al num­bers. Ban­co San­tander SA, Spain's largest bank, lost 6.3 per cent of its do­mes­tic de­posits in Ju­ly, ac­cord­ing to da­ta pub­lished by the na­tion's bank­ing as­so­ci­a­tion.

Sav­ings at Ban­co Pop­u­lar Es­panol SA, the sixth-biggest, fell 9.5 per cent the same month. Eu­robank Er­gasias SA, Greece's sec­ond-largest lender, lost 22 per cent of its cus­tomer de­posits in the 12 months end­ed March 31, ac­cord­ing to the lat­est da­ta avail­able from the firm. A to­tal of US$425 bil­lion was pulled from banks in Spain, Por­tu­gal, Ire­land and Greece in the 12 months end­ed Ju­ly 31, ac­cord­ing to da­ta com­piled by Bloomberg.

The plight of Irish and Greek lenders, which were bleed­ing cash in 2010, spread to Spain and Por­tu­gal last year. The flight of de­posits from the four coun­tries co­in­cides with an in­crease of about 300 bil­lion eu­ros at lenders in sev­en na­tions con­sid­ered the core of the eu­ro zone, in­clud­ing Ger­many and France, al­most match­ing the out­flow.

That's lead­ing to a frag­men­ta­tion of cred­it and a two-tiered bank­ing sys­tem block­ing eco­nom­ic re­cov­ery and blunt­ing Eu­ro­pean Cen­tral Bank pol­i­cy in the third year of a sov­er­eign-debt cri­sis. "Cap­i­tal flight is lead­ing to the dis­in­te­gra­tion of the eu­ro zone and di­ver­gence be­tween the pe­riph­ery and the core," said Al­ber­to Gal­lo, the Lon­don-based head of Eu­ro­pean cred­it re­search at Roy­al Bank of Scot­land Group Plc.

"Com­pa­nies pay one to two per­cent­age points more to bor­row in the pe­riph­ery. "You can't get growth to re­sume with such di­ver­gence."

Bloomberg