Posted on 29 August 2012
Spain is seeing a suicidal run on its banks with an amount
equivalent to seven per cent of GDP withdrawn in July as depositors took
their money out of the country.
This sets Spain up for a crash in GDP in the second half and mimics what happened in Greece. The eurozone crisis has spread to its fourth largest economy.
Far from solving its economic problems the Spanish government is making them worse with budget cutbacks that have initiated a downward spiral. Less spending means less money in circulation and that drags economic output down. Stuck in the single currency Spain cannot devalue like the UK did in 2009.
$92bn bank run
Spanish banks lost deposits worth $92 billion in July alone and this is an acclerating trend. The loss of liquidity is highly damaging. This money has flown abroad to German banks and into London property from where some of it is lent back to Spain in emergency funding for the banks.
To make matters worse the Spanish central government is losing its grip on power with the Catalonian regional government demanding an $8 billion rescue package yesterday. Portugal is facing similar problems.
Just like Portugal, Ireland and Greece it is now only a matter of time before Spain calls for an emergency bailout of its banking system. The dilemma for the government is that any loan package would doubtless come with tough conditions that will make the economic decline worse and not better in Spain.
The pain in Spain is only beginning. Greece is much closer to an exit from the eurozone. The next ArabianMoney investment newsletter (click here) will examine the case for investing in the Greek stock market that has hit valuations comparable to the US at the bottom of the Great Depression.
Source>>Run on Spanish banks follows Greek pattern as 7% of GDP is withdrawn in July
Spain is seeing a suicidal run on its banks with an amount
equivalent to seven per cent of GDP withdrawn in July as depositors took
their money out of the country.This sets Spain up for a crash in GDP in the second half and mimics what happened in Greece. The eurozone crisis has spread to its fourth largest economy.
Far from solving its economic problems the Spanish government is making them worse with budget cutbacks that have initiated a downward spiral. Less spending means less money in circulation and that drags economic output down. Stuck in the single currency Spain cannot devalue like the UK did in 2009.
$92bn bank run
Spanish banks lost deposits worth $92 billion in July alone and this is an acclerating trend. The loss of liquidity is highly damaging. This money has flown abroad to German banks and into London property from where some of it is lent back to Spain in emergency funding for the banks.
To make matters worse the Spanish central government is losing its grip on power with the Catalonian regional government demanding an $8 billion rescue package yesterday. Portugal is facing similar problems.
Just like Portugal, Ireland and Greece it is now only a matter of time before Spain calls for an emergency bailout of its banking system. The dilemma for the government is that any loan package would doubtless come with tough conditions that will make the economic decline worse and not better in Spain.
The pain in Spain is only beginning. Greece is much closer to an exit from the eurozone. The next ArabianMoney investment newsletter (click here) will examine the case for investing in the Greek stock market that has hit valuations comparable to the US at the bottom of the Great Depression.
Source>>Run on Spanish banks follows Greek pattern as 7% of GDP is withdrawn in July
