Spain faces Greek-style crisis

BEIJING, May 18 (Xinhuanet) — Spain has paid sharply higher interest rates to raise 2.5 billion Euros in a medium-term debt auction.

On Thursday, the shares of a recently nationalized Spanish bank plummeted after reports said depositors were rushing to withdraw money. This reflects concerns the country will be caught up in the fallout of the Greek crisis.

There’s been much talk of Greeks withdrawing cash from banks – now it’s reportedly happening in Spain too.

Bankia customers – nervous after its recent nationalisation – have apparently pulled out almost a billion euros in recent days.

New figures also show Spain has slipped into recession.

The economy shrank by 0.3 percent in the first quarter and manufacturing shrank at its fastest rate in three years.

Spain’s also paying a high price for debt.

The Treasury has just had to pay a far higher yield than hoped to auction two and a half billion euros worth of bonds.

All this after a warning from the Prime Minister that Spain risks being shut out of financial markets.

Spanish Prime Minister Mariano Rajoy said, “The situation, as you say, is very difficult, it’s very complicated, the risk premium has increased a lot and that means it’s very difficult to finance oneself.”

The eurozone is struggling to balance austerity with growth and Madrid is struggling to convince investors it can control its public finances.

Pablo del Barrio is an analyst at XTB.

XTB analyst Pablo del Barrio said, “We need a more expansive monetary policy with interest rates lower than the current 1 percent, 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.”

Spain has implemented severe spending cuts – and the public anger over them is growing.

Fears also persist that rebuilding the country’s battered banks will cost too much.

But it’s the escalating euro zone crisis as a whole which is the biggest threat.

Greece’s woes could end up seeming insignificant if the bloc’s fourth largest economy is further battered by nervous investors and bleak prospects.