British financial authorities are drawing up emergency plans to cope with the fallout from the Spanish financial crisis as fears over Spain’s ability to curb its debts grow this weekend.
Senior City figures have cited that Britain’s banks should be more than capable of dealing with a Spanish crisis. The UK authorities are less optimistic and are expecting the situation to be magnified as a result of the significant banking links with Spain, the large British expatriate community and the high level of British holiday property ownership.
More than 700,000 British expatriates live in Spain, more than 500,000 Spanish homes are thought to be owned by British citizens.
In Spain, since the start of the financial crisis, it has been estimated that the average house prices in Spain have dropped over 25%. This is expected to have exposed Spanish banks to many billions of euros of potential bad debts. British banks’ total exposure to Spanish debts is thought to be circa. £52 Billion including about £2.75 Billion in Spanish government debt, about £8 Billion in loans to Spanish banks and the majority in loans to the private sector.
Santander UK – which owns Abbey and parts of Bradford & Bingley and Alliance & Leicester – is separately funded from its Spanish parent group and its deposits are covered by Britain’s Financial Services Compensation Scheme.
The Spanish Government approved an austerity budget on Friday in an attempt to meet European targets to curb its borrowing. This was met by rioting reflecting widespread fury by many Spaniards.
Spain and Italy are currently believed to be the countries most likely to need financial bailouts, following financial lifelines to Ireland, Greece and Portugal.
The concern and fear for the Eurozone would be :-
- the size and volume of money needed following the recent further bail-out of Greece
- the ability for us all as member states to continue to raise the necessary money
- the financial effect of the level of indebtedness needed by each member state to fund these lifelines
- how long can we afford to continue to raise these additions
