In European Debt Crisis, 'The Street Has Taken Control'

There’s a new phrase being used to describe Europe's financial crisis: “the street has taken control.”

Coined during the Latin American debt crisis of the 1980s, it refers to the idea that policy makers are losing control and that the people—the so-called “street”— are now in charge.

It happens in three ways: the ballot box, social unrest and the financial system. All of them were pervasive during the Latin American crisis.

Now in Europe, we’ve already seen that happen in dramatic fashion. First, it came at the ballot boxes in France and Greece, where voters rejected austerity measures and backed candidates who promised to lessen the pain.

Second, there's been social unrest—not just in Greece, where it’s been the worst, but in waves of protests across Europe, including Spain, Portugal, and France.

Events of the past week suggest “the street” is now beginning to take control of the financial system. People are expressing fears about the future of the euro and Europe by taking their money out of banks.

Outflows of bank deposits in Greece have accelerated since the inconclusive election on May 6. In Spain last week, the Finance Minister rushed to quell rumors of a bank run atBankia, which was crushing its stock price.

The last factor is the most dangerous and potentially debilitating to the European Union.

If full bank runs happen in Greece—with people withdrawing their money in order to hoard euros —the European Central Bank  will be forced to make a decision about how much of that cash they are going to back.

And that would force a decision about Greece staying in the euro zone even before the elections on June 17.



CNBC