Deutsche Bank Running Away From Spain

Deutsche Bank, one of Germany largest banks, has reduced its exposure to peripheral countries by 70%.  The move in Spain is dramatic: it now holds only 1.07 billion euros in Spanish bonds, 53% less than at the end of 2010.

The German bank also reduced its limited exposure to Italy, and also Greece, a move that began earlier.

This report was provided by the major Spanish newspaper, El Pais.

This revelation shows that the “bond vigilantes” aren’t only obscure speculators or “shorters” that smell blood and jump on the wounded animal. Deutsche Bank is an international company with presence also in Spain.

Spanish and Italian bond yields jumped after the Portugal’s debt was downgraded, and after Italy got into trouble. The EU summit provided some relief, but was very temporary.

Spanish bond yields refuse to go under 6%, and Italian yields are not too far off, at 5.8%. These are unsustainable levels.

Unless the ECB starts printing money fast, the next round of the crisis will come fast, well before the next tranche of aid for Greece is due, in September. I don’t think Merkel and Sarkozi will have a summer vacation this year…

Further reading:

• 5 reasons why Ireland should follow Greece and default
• Spain’s hidden debt – It’s starting to surface…