In recent weeks we heard stories of deposits being pulled in Greece, now the contagion has spread to Spain. The ECB has stated that private investors and companies are withdrawing from Spanish financial institutions at the worst possible time. Having to cope with bailing out Bankia and rumours of other banks needing funding, stock market falling, bonds rates reaching 7% and todays downgrade of 8 autonomous regions, this is going to hit Rajoy how is already struggling to keep Spain from needing a bailout. The inevitable most happen.
Investors are fleeing Spain as the financial crisis worsens while Madrid battles to contain fears of an economic collapse.
The European Central Bank said on Wednesday that private individuals and companies are withdrawing their money out of Spanish Banks. Data shows private deposits at Spain’s financial institutions fell by more than 30 percent in April. The interest rate on Spain’s 10-year bonds rose to 6.703 percent as the country battled to avoid being the next victim of the eurozone crisis. Stock prices fell all over the world and Madrid’s IBEX-35 index slumped 2.58 percent to a nine-year low at 6,090.4 points. The euro slumped to a two-year low versus the US dollar amid fears that Spain could be forced into asking for a bailout for its ailing banks.
Also on Wednesday, the European Commission said Spain is on top of the list of the eurozone 12 critical economies due to the countries’ deepening financial crisis.
Spain’s central bank reported on Tuesday that Spain’s economy would shrink in the second quarter of 2012, with the recession expected to continue until at least mid-2012.
Battered by the global financial downturn, the Spanish economy collapsed into recession in the second half of 2008, taking with it millions of jobs.
The worsening eurozone debt crisis has raised Spain’s financing costs and raised concerns that the country might have to seek a European Union bailout, like Greece.