Where did 484 billion euros go? It's a financial mystery.

At the end of last week, European banks withdrew an unprecedented 484 billion euros in one day from the European Central Bank, leaving financial market traders stunned.

The event was precipitated by ECB lowering its benchmark interest rate the week before. The ECB brought down the interest it charges on euros it lends to banks by 25 basis points to 0.75%. The converse rate, paid by the bank to depositors, was also reduced to the tidy figure of 0%.

These are lousy rates for investments or savings. Thus, investors across the globe, including banks and institutions, came to the conclusion that there was no point in keeping assets valued in euros, or in parking their money at the ECB.

The ensuing massive withdrawal from the ECB caused the euro to plummet against the U.S. dollar and against other currencies too. The euro ended the week at 1.223 against the dollar, its lowest value in two years.

Locally, these events also caused the dollar to strengthen against the shekel. It reached its highest value against the shekel in three years, a hair below the 4-shekel mark.

But the real question is: Where did all that money go?

It most certainly did not go into the stock market. Stocks were down again last week, almost across the board, not a sign of positive cash flows. In fact, the opposite is true - figures released in Europe and the United States point to withdrawals from both mutual and hedge funds.

If you know where to look, the answer is clear. As of last Thursday, the return on a 2-year Swiss government bond was -0.38%!

One needs to read this number twice to verify the negative sign. People who know a thing or two about financial markets have decided to lend their money to the Swiss government, linking it to the Swiss franc and paying a fee for doing so. Money is flowing not only to Switzerland - returns on U.S. and German government bonds are also at an all-time low.

All these facts point to one thing: a growing fear and a realization that the global economy is slowing down and, in some places, such as Europe, moving into a real recession. Even Warren Buffet, the ultimate optimist who declared his faith in the United States in the midst of the financial crisis, has changed his usual tone. He now admits that the U.S. economy is slowing down, and that the situation in Europe is rapidly spiraling downward.

Flight to safeharbor

The flight to safe harbor is evident in Israel as well. The demand for government bonds is soaring, despite the lowest returns since the last major financial crisis.

What are the underlying causes of this recession?

It is commonly agreed that the financial crisis of 2008, which erupted when the aggregate of global debt became unsustainable and unmanageable, is still with us today. However, the nature of the crisis has changed. The debt carried by banks, corporations and households has now shifted to states and governments. These failed to find ways to cut spending and limit bailout plans for "private" entities which ran into fi

nancial difficulties four years ago.

And now - as if the debt crisis, the global financial imbalance and the slowing of production in Western countries were not enough - there is a new crisis revolving around the setting of LIBOR rates. The public's confidence in the banking system, which was already shaky, has been dealt another blow. In any future scenario, the LIBOR crisis will hinder any prospects of early recovery.

Along with the rest of the world, it is clear that the Israeli economy is slowing down. Exports are not increasing or even falling, and the deficits in trade and in the balance of payments are rapidly growing. The budgetary shortfall will also end up at no less than 4% of the GDP. There is already a drop in demand in many areas. Accountants in the larger firms, who are familiar with their clients' running balance sheets, are willing to admit off the record that the second quarterly reports for this year will reflect the weakening economic situation. The second quarterly reports for companies that trade on the Tel Aviv Stock Exchange are due in the next few weeks, and will show losses and many delistings.

Despite this, anyone strolling through the streets of Tel Aviv or other urban centers over the weekend will get a picture that is not indicative of an economy slamming on the brakes. People look happy, restaurants are full and wallets open easily at the malls. How is this possible? The answer lies in the dichotomy of Israeli society: those who see the recession coming and will soon feel it up close, and those who are totally disconnected.

The latter group includes those who are established and well-connected, who work in the bloated public sector, areas with little competition, monopolistic or oligopolistic companies, or branches of the economy controlled by powerful unions. These include mid- and upper-level workers in the public sector, anyone working in the defense establishment, bank employees, people who work in government authorities such as the sea and airports, the electricity company, and all the pensioners of these organizations.Who will feel the recession?

Who gets hurt?

All of them are unconcerned about a slowdown or recession. They have guaranteed salaries or pensions, and past experience shows that these will not be tampered with, especially not on the eve of elections. Unworried, these people have little interest in local and global economic issues. It is likely that they know little of the national budget-balancing problems, and they will continue to frequent restaurants.

The other group consists of all the rest, including people in the competitive private sector, export businesses, small and medium-size businesses, and all the occupations that have no long-term labor agreements for delivering services to the other group. This group also includes all the lower-level employees in the public sector and those without tenure, who are starting to realize that the economy is on a slippery slope, even if it is not yet very steep. They may still go to restaurants and other entertainment venues this summer, but they are starting to ask themselves if they will be able to sustain this lifestyle in the coming months.