Given all the stories in the press about how worried Spaniards are moving their money abroad, I thought I would take a look at the latest balances from the Bank of Spain.
The net international investment position of Spain hasn’t really changed since 2009, and has stood at almost minus 1 trillion euro. The big changes have been on how the components of this balance have shifted.
The biggest shift has taken place in the Banco de Espana column, where the net position has gone from a positive 39 billion to 184 billion negative in the last year. Since the numbers have to balance out, where did this 200+ billion euro shift come from? Not surprisingly, most of it comes from the portfolio investment category, where foreign investors have dumped about 200 billion euros since 2010.
The good news is that a huge negative Banco de Espana is actually a good thing for the economy, since it does not represent actual interest paying debt, but is just an accounting entry used by European Central Bank. Eventually, if Spain starts running a surplus instead of a deficit, this balance would start to decrease, but until then, no one is going to come knocking for it.
Unfortunately about 100 billon of the fleeing money was from redeeming bonds, (most probably from banks), which were worth a lot less than the face value. Spain lost the opportunity to "bail-in" these bondholders and is making taxpayers make up the difference.