Spain’s banking system has suffered massive outflows of cash as investors become worried that the country will need a bailout and fragile banks count more and more troubled assets on their portfolios.The latest news from Spain isn’t reassuring.
Today, the Bank of Spain released monthly payments on its balance of payments, showing that capital was continued to flow out of the country.
Here are the most worrisome numbers from that report:
- €41.3 billion ($50.6 billion) in funds flowed out of Spain in May. All told, €163.2 billion ($200.4 billion) has flowed out of the country this year.
- Direct investment declined by €1.2 billion ($1.5 billion) in May, versus increases earlier this year.
- Spain’s deficit rose to 4.04 per cent of GDP by June, well over half the deficit it targeted for the end of the year. (It’s worthwhile to keep in mind, however, that the country front-loaded debt issuance, taking advantage of low borrowing costs in the wake of ECB liquidity measures late last year and early this year.)
- Spain’s foreign exchange reserves declined by €243 million ($299 million).
- Domestic income fell by €1.9 billion ($2.3 billion) in May.
Meanwhile, the decline in Spanish borrowing costs (yields on bonds) has slowed, with 2-year yields falling 5 basis points to 4.95 per cent today and yields on the 10-year staying stable at 6.61 per cent. Yields had been steadily declining in the wake of hints by European Central Bank President Mario Draghi last week that the central bank was about to take action to slow an unsustainable rise in borrowing costs over the last month.
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