Deepening Crisis: Spain Reports Record Capital Flight
Capital outflows from Spain quadrupled in May to €41.3 billion from May 2011 in a sign of waning confidence in the country's ailing banking sector. In the first five months of this year, outflows reached a record €163 billion, according to figures from the country's central bank.
Capital outflows from Spain more than quadrupled in May to 41.3 billion ($50.7 billion) compared with May 2011, according to figures released on Tuesday by the Spanish central bank.
The outflow has resulted from domestic banks sending money abroad, foreign lenders pulling out cash and mostly non-resident investors dumping Spanish assets. The steep rise was likely due to Bankia, the banking conglomerate, having requested a bailout in May.
Over the last 11 months, funds equivalent to 26 percent of gross domestic product exited the country, Tuesday's data from the Bank of Spain showed.
Too Big to Rescue
Spain's struggling economy, which is expected to remain in recession well into next year, is now at the center of the euro crisis. Skyrocketing borrowing costs risk shutting the country out of international debt markets.
Reports on Tuesday said France and Italy were proposing giving the permanent bailout fund, the European Stability Mechanism, a banking license which would equip it with unlimited firepower because it could borrow funds from the European Central Bank using government bonds as collateral.
Germany opposes such a plan, arguing that it would stoke inflation and lead to an indirect collectivization of debts. It would also see countries receive help without having to do anything in return.
cro -- with wire reports
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