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Spanish Economic and Financial Outlook

Title article:
The importance of foreign banks in financing the Spanish economy
Authors:
Joaquín Maudos
Abstract:

Two major economic imbalances in Spain are the size of its negative financial position versus the rest of the world and its high level of external debt. A large part of Spain’s financing comes from banks in third countries and the effects of the crisis have led to increased capital flight. Three main lessons can be drawn from this crisis. First, the stigma of a bailout causes increased capital flight by foreign banks. Second, increasing financial markets globalization and integration demand global responses. Third, European banks reduced more their capital exposure to other euro-area partners, undermining confidence and deviating from the path of financial integration. To prevent further deterioration of the current situation and capital flight, the Spanish authorities should push forward reforms to restore confidence and continue working with their European partners in constructing a more integrated European financial market.

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