Capital Flight from Spain

It's been a while since Spain was in the headlines

Capital Flight in Spain Hits 15-Year High

Mish's Global Economic Analysis,

28 August, 2012

If Spain is going to be saved, someone better convince Spanish citizens because Deposit flight from Spanish banks hits 15-year high as bailout rumours grow

 Spanish banks lost €1 out of every €20 deposited with them in July, making it the worst month for deposit flight in 15 years as rumours grew that the country is edging closer to a full bailout.

News that banks were losing deposits came as Spain's statistics institute revealed the current recession is worse than thought, with the economy shrinking at an annual rate of 1.3% in the second quarter.

"The downturn in the Spanish economy is deeper than previously thought and accelerating," warned Robert O'Daly of the Economist Intelligence Unit.

Tuesday's revised figures showed recession started three months earlier than previously indicated. "The data shows the recession started in the third quarter of last year," secretary for state for the economy, Fernando Jiménez admitted.

A collapse in internal consumption in a country squeezed by government austerity and massive unemployment is largely to blame for the recession, as this fell at an annual rate of 3.9% in the second quarter.

Unemployment is already at 25% but the speed at which jobs are being destroyed quickened to an average rate of 800,000 jobs a year in the second quarter, according to the statistics institute.

That helps explain why Spaniards, and their companies, are both reducing spending and putting less money in the bank.

The amount of money Germany is going to lose when Spain and Italy decide to exit the euro grows leaps and bounds every month.

A New Run On The Banks?

Spaniards Pulling Cash Out 

At Record Rates

Spanish consumers are pulling their cash out of banks at

record levels, according to figures released on Tuesday.

International Business Times,

28 August, 2012

Private sector deposits fell by nearly 5 percent in July to €1.509, the Telegraph reported, citing European Central Bank data, as public confidence in the banking system reached all-time lows amid a worsening economic situation.

The news comes after bond markets continued to hammer the debt-ridden euro zone nations Spain and Italy last week.

On Friday, the interest rate on a 10-year loan to the Spanish government briefly topped 6 percent -- a level that forced Greece into a default earlier this year, despite massive financial support from international sources -- before settling back to 5.96 percent.

"The pick-up in yields is a clear negative headline for Spain," Jo Tomkins, an analyst at 4Cast, a consulting firm, told the New York Times. "The country is facing a double-whammy of low growth and tough austerity, and [there are] doubts that it will be able to hit already optimistic deficit targets."

The surge in bond yields was followed by a two-notch credit downgrade by Standard & Poor's, which slashed the country's rating to BBB + on worries about the government's exposure to the nation's ailing banks. The current reduced rating is still considered to be investment grade.

The yield on Spain's two-year notes surged to the highest level in 18 years, Bloomberg News said.

Meanwhile, Spanish unemployment climbed to 24.4 percent of the workforce, the government said.

Italy's cost of borrowing was close behind its western neighbor: The yield on a 10-year note rose Friday to 5.84 percent from 5.24 percent.

"These ... results certainly came at a price which, in turn, leaves a question mark over how long Italy will be able to finance itself at levels that can be deemed sustainable," Richard McGuire, senior fixed income strategist at Rabobank, told the Wall Street Journal.