The Spanish bank run accelerates

Those watching the slow-motion European economic implosion will recall that back in May, I described the bank runs developing in Greece and Spain.  According to the Telegraph, things have gotten much worse since then in the latter country.

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.

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.

. . .


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.

. . .

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.

There's more at the link.

Folks, if your country's banks see the equivalent of seven per cent of gross domestic product withdrawn in the space of a single month, you may as well stick a fork in that economy.  It's done.  To put the problem in perspective, if the same thing happened here in the USA (where our GDP was $15.094 trillion in 2011), it would mean bank withdrawals by consumers and businesses of more than a trillion dollars in a single month.

Nor is Spain alone in this mess.  Greece's problems are well-known;  Portugal's are getting worse, as described in the above report;  and Italy's following them to the brink.  If all four of those economies topple over, the entire Eurozone goes with them, one way or another.

Peter