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Thursday, May 31, 2012

Money flies out of Spain, regions pressured

While contagion continues to spread throughout the periphery of Greece, Spain, Portugal, and lesser degree Italy and Japan, it remains largely contained as capital flees towards the safety of the center. This dynamic won't hold for long. The center's growing inability service its existing debts will eventually force capital from the public to private sector. When that happens, likely 2015-2016, interest rates will begin their relentless climb and the center's ability to borrow and support their social programs will decline.

Headline: Money flies out of Spain, regions pressured
By Sonya Dowsett and Sarah White MADRID (Reuters) - Spaniards alarmed by the dire state of their banks are squirreling money abroad at the fastest rate since records began, figures showed on Thursday, and the credit ratings of eight regions were cut. Spain is the next country in the firing line of the euro zone's debt crisis, with spendthrift regions and shaky banks threatening to blow a hole in state finances and pushing funding costs towards levels that signal the need for a bailout. The European Commission gave new help on Wednesday, offering direct aid from a euro zone rescue fund to recapitalize Spanish banks and more time for Madrid to reduce its budget deficit. That helped lower the risk premium investors demand to hold Spanish 10-year debt rather than the German benchmark on Thursday, but it remained close to the euro-era record, at 520 basis points.


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