Money flies out of Spain, regions pressured

Fri Jun 1, 2012 8:01am EDT
 
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By Nigel Davies and Sonya Dowsett

MADRID (Reuters) - Spaniards alarmed by the dire state of their banks are squirreling money abroad at the fastest rate since records began, figures showed on Thursday, and the credit ratings of eight regions were cut.

Spain is the next country in the firing line of the euro zone's debt crisis, with spendthrift regions and shaky banks threatening to blow a hole in state finances and pushing funding costs towards levels that signal the need for a bailout.

The European Commission gave new help on Wednesday, offering direct aid from a euro zone rescue fund to recapitalize Spanish banks and more time for Madrid to reduce its budget deficit.

That helped lower the risk premium investors demand to hold Spanish 10-year debt rather than the German benchmark on Thursday, but it remained close to the euro-era record, at 520 basis points.

Bank of Spain data showed a net 66.2 billion euros ($82.0 billion) was sent abroad in March, the most since records began in 1990. The figure compares to a 5.4 billion net entry of funds during the same month one year ago.

Spaniards are worried about the health of their banks, hit by their exposure to a 2008 property crash, and have been sending money to deposit accounts in stronger economies of northern Europe.

Spain's Economy Minister Luis de Guindos however said the data was more a reflection of the troubles of the banking sector to fund itself externally than deposits flying abroad.

The capital flight data predates the nationalization of Spain's fourth biggest lender Bankia in May when it became clear the bank could not handle losses from bad real estate investments, compounded by a recession.   Continued...

 
A Spanish flag flutters in the wind near a statue of Columbus in Madrid May 18, 2012. REUTERS/Susana Vera