Yves here. Readers in Spain have dismissed the possibility of a Spanish breakup. But long-simmering regional frustrations combined with a rapidly deteriorating economy have the potential to produce paralyzing levels of civil disobedience. As Marshall Auerback said in a e-mail:
The big weak point is Spain. They just had 1.5 million people take to the street in Catalunia out of a total population of 7.5 million.
This week Bloomberg reported Spanish bank deposits declined by 224 billion euros or 10% in the twelve months ending July 31st. That is equal to more than 20% of Spanish GDP. When I started to warn about Spain as “the domino too big to fall” in May of 2011, I could not have imagined a deposit contraction of this magnitude.
Spanish banking system borrowings from the ECB rose from 82 billion euros to 412 billion euros in the twelve months through August of this year, according to the Bank of Spain. Once again this amounts to lender of last resort financing equal to over 30% of GDP in a mere year. This is also unimaginable.
There can be no doubt that the run on Spanish banks has been ongoing, massive, and most likely devastating.
Spanish real estate prices have been falling for years. Retail sales are collapsing from very depressed levels. Total employment has been crashing. Spain’s employment has been falling steadily year on year at a roughly 3.3% annual rate. That is equivalent to a 600,000 monthly fall in the U.S. We all agree that would translate into something like a 4% or 5% or 6% rate of GDP contraction.
No wonder Rajoy doesn’t want to submit to the barbarism of the ECB’s programs. If you loved what was happening in Athens, just wait until this show moves