Capital flight from Spain has doubled to a new record and the country has demanded the European Central Bank recapitalize its teetering financial system, warning that the alternative is a broader bailout that could rock the European economy.
Distraught Spain is playing a high-stakes game of chicken with the European Union, using to its advantage the likelihood that it will drag Europe and the rest of the world into a downward economic spiral if it doesn't get the funds it needs to keep its banks afloat.
“The battle for the euro is being waged now in very important countries like Italy and Spain,” Spanish Economy Minister Luis de Guindos said yesterday.
Spain faces a raft of economic problems, but the government insists that if the European Central Bank provides the lifeline that Spain's reeling banks need, the other issues will resolve themselves because structural reforms to the economy are already in place. All it needs, other than affordable credit, is time, the government says.
But the fiscal conservatives, led by Germany, are not flinching.
Spain, Europe’s fourth biggest economy and home to some of world’s biggest banks, is neck-deep in a crisis that has bled into just about every aspect of daily life. There is little cash, the economy is shrinking, there's no credit, and pessimism abounds. People are wondering what currency to convert their savings to and how to open bank accounts in Switzerland, an unthinkable scenario just a year ago.
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