Welcome to the new Independent website. We hope you enjoy it and we value your feedback. Please contact us here.


Spain reels as high street hits fresh low


The sinking Spanish economy was struck a fresh blow yesterday with retail sales figures for April showing a 9.8 per cent year-on-year fall, the biggest since records began in 2003.

Spain's fourth largest lender, Bankia, also suffered another battering on the Spanish stock exchange, with its shares plummeting by 16 per cent, reflecting growing fears about the solvency of the financial sector.

This was the 22nd month in a row that Spanish retail sales have fallen. The public are battening down their hatches as the centre-right government seeks to impose the most brutal round of austerity seen in Spain since the Franco era. Prime Minister Mariano Rajoy, under orders from the European Commission, is looking to reduce Spain's budget deficit from 8.9 per cent of GDP to 5.3 per cent by the end of this year.

The economy has already succumbed to recession and the OECD last week forecast that it will sink 1.6 per cent over the course of 2012. Nationwide unemployment has reached 24 per cent and some 50 per cent of young people are jobless.

But an even more immediate crisis is the state of its financial sector, which is groaning under an estimated €100bn (£80bn) in bad loans made to the country's collapsed real estate industry. An independent audit of the sector is under way and will report next month on how much extra capital the banks need to stay afloat. But many analysts wonder if Spain has the resources to rescue its lenders.

The government announced last week that it would be ploughing a further €19bn of public money in to its weakest major lender, Bankia. Yet on Monday, it emerged that Madrid is planning to do so by issuing the bank with Spanish government bonds, rather than cash. While this would keep Bankia going for a while, since it could swap these bonds for euros at the European Central Bank, it would increase Spain's debt pile.

Many investors think Spain will soon be forced to apply for a bailout from the eurozone rescue fund. But this is something it has been resisting since a bailout would entail the same kind of intrusive external supervision seen in Greece, Portugal and Ireland. Madrid would prefer to maintain some of its autonomy by negotiating a direct bailout of its banks by the European authorities. Investors, however, are dumping Spanish sovereign debt in anticipation of a bailout that they fear may leave them at risk of a "haircut", as seen in Greece.