Spain saw a net 66.2 billion euros ($81.8 billion) leaving the country in March, with outflows of foreign portfolio investment increasing tenfold as the economy contracted.
Foreign portfolio-investment in Spain registered an outflow of 22.6 billion euros in March, up from 2 billion euros a year earlier, the Bank of Spain said today. Other investments, mainly loans, repos and deposits, showed a negative balance of 46.4 billion euros as Spaniards invested abroad and foreigners withdrew funds. There was a positive balance of 10.9 billion euros a year earlier.
Spain’s borrowing costs are approaching the 7 percent mark that heralded bailouts in Greece, Ireland and Portugal as Prime Minister Mariano Rajoy pushes through budget cuts amid a deepening recession and concern grows that banking losses could overwhelm the public finances. The yield on Spain’s 10-year benchmark bond is at 6.56 percent, compared with a euro-era high of 6.78 percent on Nov. 17.
“It’s a bank walk before the bank run,” Javier Diaz-Gimenez, a professor at the IESE business school in Madrid, said in a telephone interview. “It’s the response of those who are managing savings in Spain to a worrying situation.”
Foreign investors are selling Spanish bonds, Treasury data show. They held 37 percent of the total in April, down from 50 percent at the end of last year, while Spanish banks increased their holdings to 29 percent from 17 percent.
“Foreign investors are getting more worried about Spain,” said Ricardo Santos, a European economist at BNP Paribas in London. “We are seeing foreign investors leaving and being replaced by domestic investors who are being funded by the European Central Bank.”