Spanish banks lost â‚¬1 out of every â‚¬20 deposited with them in July, making it the worst month for deposit flight in 15 years as rumours grew that the country is edging closer to a full bailout.
News that banks were losing deposits came as Spain’s statistics institute revealed the current recession is worse than thought, with the economy shrinking at an annual rate of 1.3% in the second quarter.
“The downturn in the Spanish economy is deeper than previously thought and accelerating,” warned Robert O’Daly of the Economist Intelligence Unit.
Against this background, European Council president Herman Van Rompuy said it was up to Spain to decide whether to seek eurozone help, after meeting prime minister Mariano Rajoy in Madrid. Rajoy repeated that he needed more details from the European Central Bank to help him decide.
Tuesday’s revised figures showed recession started three months earlier than previously indicated. “The data shows the recession started in the third quarter of last year,” secretary for state for the economy, Fernando JimÃ©nez admitted.
A collapse in internal consumption in a country squeezed by government austerity and massive unemployment is largely to blame for the recession, as this fell at an annual rate of 3.9% in the second quarter.
Unemployment is already at 25% but the speed at which jobs are being destroyed quickened to an average rate of 800,000 jobs a year in the second quarter, according to the statistics institute.
That helps explain why Spaniards, and their companies, are both reducing spending and putting less money in the bank.
Sources at the Bank of Spain claimed the sudden drop in the amount on deposit was mostly due to banks withdrawing money placed with other entities, but the fall came amid growing consumer anger with retail banks.
Tens of thousands of small savers are set to be hit with losses on preference shares they bought in former savings banks that now need bailing out by the eurozone’s rescue fund.
Spanish banks can take up to â‚¬100bn (Â£79.7bn) from the fund, but preference shareholders must first bear losses of up to 80%. Many savers who bought the shares thought they were risk-free deposits from high street banks.
A new law due to be passed on Friday should settle their part of the bill for a banking crisis whose origins lie in the residential housing bubble that burst four years ago.
The new law should also set up a state “bad bank” to absorb toxic real estate â€“ largely worthless building land and unsold new properties â€“ that forced the nationalisation of several banks.
Attempts to stave off a full bailout took a blow on Tuesday when the regional government of Catalonia said it needed â‚¬5bn from a central government rescue fund.
Catalonia is one of half a dozen regional governments shut out of markets and needing government help to roll over debt and fund budget deficits. Regions have a combined debt of â‚¬145bn, with â‚¬36bn needing refinancing this year.
A report by the Fedea thinktank predicts Catalonia â€“ which accounts for one fifth of the economy â€“ will miss the 1.5% deficit target set this year, with an expected 2.5% deficit making it the second worst performing region.
Rajoy’s conservative central government may eventually take direct control of the region’s finances.
Regional prime minister Artur Mas, of the Catalan nationalist Convergence and Union coalition, has threatened a snap election if that happens. His spokesman, Francesc Homs, rejected any “political terms” for borrowing the money.
But as Spain pinned its hopes for avoiding a full bailout on future bond-buying by the European Central Bank, not all news was bad. On Tuesday it managed to borrow â‚¬3.6bn for three and six months at much lower rates than in recent auctions.
Exports continue to grow, while unit labour costs fell 2% â€“ signs that a gradual internal devaluation may be happening.
Spain, meanwhile, has enjoyed a summer tourist boom, which generated 9% more income this July than a year earlier.