– Fears Rising, Spaniards Pull Out Their Cash and Get Out of Spain (New York Times, Sep 3, 2012):
LONDON — It is, Julio Vildosola concedes, a very big bet.
After working six years as a senior executive for a multinational payroll-processing company in Barcelona, Spain, Mr. Vildosola is cutting his professional and financial ties with his troubled homeland. He has moved his family to a village near Cambridge, England, where he will take the reins at a small software company, and he has transferred his savings from Spanish banks to British banks.
“The macro situation in Spain is getting worse and worse,” Mr. Vildosola, 38, said last week just hours before boarding a plane to London with his wife and two small children. “There is just too much risk. Spain is going to be next after Greece, and I just don’t want to end up holding devalued pesetas.”
Mr. Vildosola is among many who worry that Spain’s economic tailspin could eventually force the country’s withdrawal from the euro and a return to its former currency, the peseta. That dire outcome is still considered a long shot, even if Spain might eventually require a Greek-style bailout. But there is no doubt that many of those in a position to do so are taking their money — and in some cases themselves — out of Spain.
In July, Spaniards withdrew a record 75 billion euros, or $94 billion, from their banks — an amount equal to 7 percent of the country’s overall economic output — as doubts grew about the durability of Spain’s financial system.
The deposit outflow in Spain reflects a broader capital flight problem that is by far the most serious in the euro zone. According to a recent research note from Nomura, capital departing the country equaled a startling 50 percent of gross domestic product over the past three months — driven largely by foreigners unloading stocks and bonds but also by Spaniards transferring their savings to foreign banks.
The withdrawals accelerated a trend that began in the middle of last year, and came despite a European commitment to pump up to 100 billion euros into the Spanish banking system. Analysts will be watching to see whether the August data, when available, shows an even faster rate of capital flight.
More disturbing for Spain is that the flight is starting to include members of its educated and entrepreneurial elite who are fed up with the lack of job opportunities in a country where the unemployment rate touches 25 percent.
According to official statistics, 30,000 Spaniards registered to work in Britain in the last year, and analysts say that this figure would be many multiples higher if workers without documents were counted. That is a 25 percent increase from a year earlier.
“No doubt there is a little bit of panic,” said José García Montalvo, an economist at Pompeu Fabra University in Barcelona. “The wealthy people have already taken their money out. Now it’s the professionals and midrange people who are moving their money to Germany and London. The mood is very, very bad.”
It is possible that the outlook could improve if the European Central Bank’s governing council, which meets Thursday, signals a plan to help shore up the finances of Spain and other euro zone laggards by intervening in the bond markets.
But right now, if anything, Spain’s picture is growing dimmer.
On Friday, the government’s bank rescue fund said it would need to pump up to 5 billion euros into the failed mortgage-lending giant Bankia, which the state seized in May. And on Monday, Andalusia became the latest of Spain’s semiautonomous regions to ask the central government for rescue money.
The wider prospects for the euro zone are also still bleak. Moody’s Investors Service said on Monday that it had changed its outlook on the AAA rating of the European Union to negative, and that it might downgrade the rating if it decides to cut the ratings on the union’s four largest budget contributors.
Spain’s gathering gloom comes despite a gradual return of capital to banks in Greece and the relative stability of deposits in those other euro zone trouble spots, Italy, Ireland and Portugal.
The continued exodus of money and people from Spain could be a warning to European policy makers that bailing out the country — a step now widely expected — may not stem the panic as long as the Spanish economy remains in a funk.
It was a lesson learned in Greece, where despite successive European bailouts, about a third of deposits have been withdrawn from its banks since 2009, as the public worried that Athens might have to return to the drachma.
Spain is still a far cry from a nearly bankrupt Greece: it has a much larger and more diverse economy, lower levels of debt and a bond market that is still functioning.
It might be more accurate to say that money is leaving Spanish banks at more of a jog than anything close to a sprint.