Spain's Banks Are Collapsing

Moneybox
A blog about business and economics.
May 25 2012 2:40 PM

Spain's Banks Are Collapsing

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A man leaves a Bankia office on May 17, 2012 in Madrid. Shares in Spain's Bankia, taken over by the state because of its troubled loans, plunged after a report that clients had withdrawn more than a billion euros ($1.27 billion) in the past week.

Photo by PEDRO ARMESTRE/AFP/GettyImages

Here in the USA, voters may not like bailing out bankrupt banks but at least there's no chance of the United States government running out of dollars. The problem in Spain where Bankia keeps asking for billions of additional bailout euros and banks are getting downgraded left and right is that the state can suffer from an actual shortage of euros.

Something for folks who recall the bank nationalization debate of 2009 to note is that Bankia is the result of Spain nationalizing and merging a bunch of failed banks. Nationalization, in other words, is different from the approach the Obama administration took but it's not an alternative to costly and unpopular bank bailouts. It's more like a different way of structuring the bailouts.

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Back to Spain, one of the main reasons to fear leaving the euro is that leaving the euro would destroy your country's domestic banking system. But if your country's domestic banking system is going to be destroyed one way or another, it's better to get ahead of the curve and leave before your country is totally drained of funds.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.