Ethan A. Huff
September 24, 2012
Spain appears poised to become the next Greece in the ongoing European Union (EU) implosion, as Spaniards are withdrawing record amounts of funds from Spanish banks to avoid a potential insolvency situation. According to the New York Times (NYT), the equivalent of $94 billion was withdrawn from Spanish banks in July, an amount that equals seven percent of the country’s overall economic output.
Though stronger overall compared to Greece in terms of economic diversity and debt levels, Spain is undeniably on a downward economic spiral that is sending many of its people and their money to other countries like England, Germany, and Singapore, where economic conditions are much more favorable. Just like in Greece, there is a growing fear among Spaniards that their nation could revert from the euro to its former currency, pesetas, which would greatly devalue their personal wealth.
“The macro situation in Spain is getting worse and worse,” said Julio Vildosola to the NYT. Vildosola, a former senior executive at a large multinational company, recently moved all his money — and is now in the process of moving his entire family — to a small village near Cambridge, England. “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.”
Spaniards pulling out their cash en masse
Vildosola’s opinion is shared by many others in Spain who are also moving their funds and families elsewhere in anticipation of an eventual collapse. Despite all the empty promises being made by EU officials, including a commitment to inject 100 billion euros into the Spanish banking system, the Spanish people, including many from the country’s upper echelons, have lost faith in their country’s ability to stay afloat in the long term.
“The wealthy people have already taken their money out,” says Spanish economist Jose Garcia Montalvo about the ongoing capital flight. “Now it’s the professionals and mid-range people who are moving their money to Germany and London. The mood is very, very bad.”
During the recent festival of “Diada de Catalunya,” or Day of Catalonia, which celebrates the end of the siege on Barcelona during the War of the Spanish Succession, an estimated 1.5 million people took to the streets to demand that Catalonia, a wealthy region of Spain that includes the city of Barcelona, secede from the country and form its own independent state. (http://latino.foxnews.com)
The European Central Bank recently announced that it will buy short-term bonds from member states that agree to abide by certain rules and conditions when applying for assistance (http://economictimes.indiatimes.com). But Spanish Prime Minister Mariano Rajoy has announced his rejection of these conditions, though he has yet to indicate whether or not his country will still request a bailout. (http://www.bbc.co.uk/news/business-19553002)
Sources for this article include: