Investors demand a yield premium of 3.63 percentage points to lend to Italy for 10 years rather than Germany, compared with an average of just 1.3 points in 2010. Spanish yields, now 5.06 percent after peaking at 6.78 percent on Nov. 17, are 3.18 points higher than Germany's.

Greek Finance Minister Evangelos Venizelos said Feb. 3 that 16 billion euros of the 65 billion euros of deposit outflows since the end of 2009 have gone abroad. Venizelos said 32 percent of the 16 billion euros went to British banks and less than 10 percent to accounts in Switzerland.

The 17-nation euro economy will contract 0.3 percent this year, according to forecasts published yesterday by the European Commission. Projected contractions of 1.3 percent in Italy and 1 percent in Spain undermined a November forecast of 0.5 percent growth.

Bank deposits typically increase in December as people cash in assets to raise money for Christmas and companies bank their takings. In Italy, where some contracts call for workers to get so-called thirteenth-month paychecks, deposits rallied by 3.9 percent at the end of last year to 1 trillion euros. In Spain, customers banked an extra 0.9 percent, boosting the total to 942 billion euros.

Financial firms in Italy have sought to divert the flows out of deposits by selling bonds, which typically pay higher interest rates than current accounts. Funds held in bonds increased 7.8 percent to 861 billion euros in December from a year earlier, according to the ABI, the Italian Banking Association.

Long-Term Funds

“As a system, we've preferred to offer a higher yield for longer-term funding,” said Alessandro Santoni, head of strategic planning at Banca Monte dei Paschi di Siena SpA, Italy's third-biggest bank. “The Italian banking system isn't particularly leveraged and now it's deleveraging because deposits are growing below the rate of inflation.”

Italian inflation rose at a 3.2 percent rate in January, according to the national statistics office in Rome.

The decline in deposits has been most marked among companies, Bloomberg data show. Since May 2010, when the first Greek bailout was put in place, corporate deposits have dropped 31 percent in the country, while individuals withdrew 24 percent of their funds. Companies also took cash away from other nations in that period, including 21 percent from Ireland, almost 8 percent from Italy and 4 percent from Spain.

Competition for customer funding has intensified across the region, prompting central banks in countries such as Portugal and Spain to penalize banks that are too aggressive in pursuit of customers' money. In Spain, the regulator obliges banks that “excessively remunerate” savers to make additional contributions to deposit guarantee funds, while in Portugal the central bank penalizes the capital ratios of lenders offering deposit rates above set levels.

Portugal's banks have succeeded in offsetting company withdrawals by winning more retail business. Corporate deposits peaked at 39.5 billion euros in December 2010 and were down 13 percent at 34.1 billion euros a year later, Bloomberg data show.

Household deposits increased by about 10 percent to 132 billion euros in the period. That's because banks have jacked up the interest rates they offer, said Andre Rodrigues, at Caixa-Banco de Investimento SA in Lisbon. He estimates the average rate the banks pay soared to 4 percent or more last year, up from about 1.5 percent previously.

“They started to pay huge rates of interest so households have been putting their money on deposit,” he said. “That isn't sustainable and I don't expect it to continue in 2012.”

Company Caution

Declines in Spain and Italy picked up speed amid contagion from Greece in the middle of last year. Company deposits slumped 11 percent in Spain from June to November, and in Italy by 6.5 percent, with multinational companies keeping as little money as possible in the most affected nations. For individuals, the decline was less than 3 percent in Spain and about 1 percent in Italy.

Vodafone Group Plc, the world's largest mobile-phone operator, moves cash from Greece to the U.K. every evening, Chief Financial Officer Andy Halford said on a Feb. 9 conference call. GlaxoSmithKline Plc, the U.K.'s largest drugmaker, started repatriating cash held in most euro-area banks early last year, said Chief Executive Officer Andrew Witty.

Paul Richardson, finance director of WPP Plc, the world's biggest advertising company, said Feb. 8 that WPP removes excess euros from its banks in Europe and changes them for dollars daily. Reckitt Benckiser Group Plc also takes cash out of its European businesses daily, CEO Rakesh Kapoor told reporters, also on Feb. 8.

Actelion Ltd., the Allschwill, Switzerland-based drug maker, said in its annual report that as of Dec. 31 it was owed 209.5 million euros by public institutions in Greece, Italy, Spain and Portugal, of which 60 million euros is more than a year overdue.

Cash “comes back to Switzerland as soon as it can,” Chief Financial Officer Andrew Oakley said in an interview, declining to be more specific. “The situation in southern Europe got a lot worse in the second half of the year.”

The combination of rising yield premiums investors demand to lend to Italy and Spain rather than Germany, plus the shifts in bank deposits between countries reflect the region's multi speed economy.

“Soaring bond yields and falling bank deposits highlight what the periphery just isn't able to do as part of the euro,” said Alex Bellefleur, an economist at Brockhouse & Cooper Inc. in Montreal. “Capital flight is a huge deal and it's very difficult to stem within an open-border currency union.”

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