Spain has suffered the worst haemorrhaging of bank deposits since the launch of the euro, losing funds equal to 7pc of GDP in a single month.
By
Ambrose Evans-Pritchard: Data from the European Central Bank shows that outflows from Spanish
commercial banks reached €74bn (£59bn) in July, twice the previous monthly
record. This brings the total deposit loss over the past year to 10.9pc,
replicating the pattern seen in Greece as the crisis spread.
It is unclear how much of the deposit loss is capital flight, either to German
banks or other safe-haven assets such as London property. The Bank of Spain
said the fall is distorted by the July effect of tax payments and by the
expiry of securitised funds.
Julian Callow from Barclays Capital said the deposit loss is €65bn even when
adjusted for the season: “This is highly significant. Deposit outflows are
clearly picking up and the balance sheet of the Spanish banking system is
contracting.”
Economy secretary Fernando Jimenez Latorre said Spain is in the eye of the
storm right now with the “worst falls” in economic output yet to come in the
second half of the year.
Meanwhile, the Spanish statistics office said the economic slump has been
deeper than feared, with lower output through 2010 and 2011. The economy
slid back into double-dip recession in the third quarter of last year, three
months earlier than thought.
The drip-drip of grim figures came amid fears of a constitutional crisis after
the Spanish region of Catalonia requested a €5bn rescue package yesterday
from the central government but refused to accept any political conditions.
The Catalan government agreed to cut its deficit to 1.5pc of GDP but vowed
to resist any attempts by Spanish premier Mariano Rajoy to exploit the
crisis to roll back the powers of the regions.
“The money that we are asking for is our own Catalan money that is being adminstered by the Spanish government,” said a spokesman, reflecting angry feelings in Barcelona that Madrid is devolving the pain of austerity on to the regions.
Mr Rajoy said he would “listen” but deflected threats of a major showdown if his government seeks to dictate terms. Catalonia is an industrial powerhouse and a net contributor to the central budget. Unlike the Basques, who have weathered the crisis better, the Catalans do not control their own tax revenues. This has become a major bone of contention, reviving bitter feelings that date back to the Franco era.
Separately, Portugal’s tax revenues fell 3.5pc in July despite higher tax rates, raising concerns that the country is tipping into a contraction spiral. It is now certain that Portugal will fail to meet this year’s deficit target of 4.5pc of GDP under its €78bn rescue from the EU-IMF troika. Morgan Stanley said the country will need a “second bail-out” in the autumn.
Mr Callow said shrinking deposits in Spain and other Club Med states are being offset by rises in Germany and the Netherlands, pointing to further “fragmentation” of the eurozone. This will strengthen the hand of ECB chief Mario Draghi as he pushes for mass purchases of Spanish and Italian bonds.
Jorg Asmussen, Germany’s director at the ECB, has signalled support for Mr Draghi once again, saying the authorities cannot allow fears of EMU break-up – or “convertibility” – to destabilise the currency. “Any concerns about treaty-violating state financing will be dispelled,” he said.
The ECB data showed that EMU-wide loans to firms and households continued to contract in July and are down 0.6pc over the past year, implying an acute squeeze in the weakest parts of the eurozone. Jennifer McKeown from Capital Economics said it is clear that the ECB’s €1 trillion blitz of cheap lending to banks over the winter – known as the “LTROs” – has failed to kick-start private lending.
Both Mr Draghi and Mr Asmussen agree that the ECB cannot act alone. It can only offer a flanking operation alongside eurozone bail-out funds (EFSF and ESM), which have the powers to enforce tough conditions.
Nothing can happen until Spain requests a loan package and signs a “memorandum” giving up fiscal sovereignty. It remains unclear whether Mr Rajoy will agree to this.
Mr Draghi has pulled out of the impending Jackson Hole gathering of central bankers, disappointing hopes he would use the event in the US to make the ECB’s plans clearer.
Meanwhile, the Greek government said it is planning to launch Chinese-style “economic zones” with special tax and regulatory breaks in a desperate bid to attract foreign investment.
But the Athens plans could face legal difficulties due to the European Union’s free market rules.
Source
“The money that we are asking for is our own Catalan money that is being adminstered by the Spanish government,” said a spokesman, reflecting angry feelings in Barcelona that Madrid is devolving the pain of austerity on to the regions.
Mr Rajoy said he would “listen” but deflected threats of a major showdown if his government seeks to dictate terms. Catalonia is an industrial powerhouse and a net contributor to the central budget. Unlike the Basques, who have weathered the crisis better, the Catalans do not control their own tax revenues. This has become a major bone of contention, reviving bitter feelings that date back to the Franco era.
Separately, Portugal’s tax revenues fell 3.5pc in July despite higher tax rates, raising concerns that the country is tipping into a contraction spiral. It is now certain that Portugal will fail to meet this year’s deficit target of 4.5pc of GDP under its €78bn rescue from the EU-IMF troika. Morgan Stanley said the country will need a “second bail-out” in the autumn.
Mr Callow said shrinking deposits in Spain and other Club Med states are being offset by rises in Germany and the Netherlands, pointing to further “fragmentation” of the eurozone. This will strengthen the hand of ECB chief Mario Draghi as he pushes for mass purchases of Spanish and Italian bonds.
Jorg Asmussen, Germany’s director at the ECB, has signalled support for Mr Draghi once again, saying the authorities cannot allow fears of EMU break-up – or “convertibility” – to destabilise the currency. “Any concerns about treaty-violating state financing will be dispelled,” he said.
The ECB data showed that EMU-wide loans to firms and households continued to contract in July and are down 0.6pc over the past year, implying an acute squeeze in the weakest parts of the eurozone. Jennifer McKeown from Capital Economics said it is clear that the ECB’s €1 trillion blitz of cheap lending to banks over the winter – known as the “LTROs” – has failed to kick-start private lending.
Both Mr Draghi and Mr Asmussen agree that the ECB cannot act alone. It can only offer a flanking operation alongside eurozone bail-out funds (EFSF and ESM), which have the powers to enforce tough conditions.
Nothing can happen until Spain requests a loan package and signs a “memorandum” giving up fiscal sovereignty. It remains unclear whether Mr Rajoy will agree to this.
Mr Draghi has pulled out of the impending Jackson Hole gathering of central bankers, disappointing hopes he would use the event in the US to make the ECB’s plans clearer.
Meanwhile, the Greek government said it is planning to launch Chinese-style “economic zones” with special tax and regulatory breaks in a desperate bid to attract foreign investment.
But the Athens plans could face legal difficulties due to the European Union’s free market rules.
Source
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