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Title: Disaster plans for the large British expatriate community owning high level of British holiday property.
Author: Fraser Trevor
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British financial authorities are drawing up emergency plans to cope with the fallout from the Spanish financial crisis as fears over Madrid...

British financial authorities are drawing up emergency plans to cope with the fallout from the Spanish financial crisis as fears over Madrid’s ability to curb its debts grow this weekend.

The Treasury, the Financial Services Authority and the Bank of England have been discussing the risks to public confidence here posed by the strong financial links between Spain and Britain.

Senior City figures feel certain that Britain’s banks are more than capable of dealing with a Spanish crisis. But the authorities are not ignoring the risk of public alarm, which is likely 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.

Riot police block the main door of the stock exchange after the demonstrators burned the entrance during the recent general strike in Barcelona

Under fire: The Barcelona stock exchange was attacked during the recent strike

More than 700,000 British expatriates live in Spain while more than 500,000 homes there are thought to be owned by British citizens.

Average house prices in Spain have plunged 25 per cent since the start of the financial crisis, exposing its banks to billions of euros of bad debts.

British banks’ total exposure to Spanish debts is about £52 billion. Of that about £2.75 billion is in Spanish government debt, about £8  billion is in loans to Spanish banks and the rest is in loans to the country’s private sector.

 

Shares in banks including Barclays and Lloyds fell last week, partly in response to Spanish riots reflecting widespread fury over new budget cuts.

Santander UK – which owns 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 government in Madrid approved an austerity budget on Friday in an attempt to meet European targets to curb its borrowing. 

Spain and Italy have been regarded as the countries most likely to require bailouts in the wake of the financial lifelines that were thrown to Ireland, Greece and Portugal.

The yields of Spanish and Italian government bonds – in effect the likely cost to those governments of borrowing money – soared above seven per cent last year.

The yields had dropped back, but those on Spanish debt have begun to climb again in recent weeks and ended last week at 5.4 per cent – far above the rock bottom cost of borrowing for the eurozone’s financial strongman Germany, whose bonds yield about 1.8 per cent.




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