After the Prime Minister’s warning that Spain risks being shut out of the financial markets, economic data is now showing the nation is back in recession. The economy shrank by 0.3% in the first quarter and manufacturing shrank at its fastest rate in three years.
On the news of further economic erosion and the recent nationalization of Bankia SA, Bankia customers withdrew nearly one billion euros in a matter of days. Many are calling the mass withdrawals a “jog” (as opposed to a run) on the banks. At any rate, the outflow was enough to send Bankia share prices tanking and Spain’s borrowing costs lifted higher than expected at bond auction as a result.
As the eurozone’s fourth-largest economy, the Spanish threat is looming large, compounding the worries of a market already fearful of a possible exit of Greece and a breakup of the economic bloc.
Pablo del Barrio, analyst at XTB, suggests a possible way to prevent the crisis:
“We need a more expansive monetary policy with interest rates lower than the current 1%, with the ECB buying bonds, especially from the troubled countries like Spain and Italy, and that would serve as barrier to stop the crisis form extending and stop the speculation around the breakup of the eurozone.”