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Spaniards Withdraw Money As Recession Deepens

(c) Sky News 2012

The Spanish have withdrawn money from banks at a record rate in July, as official figures show their country's recession has deepened.

A rush by consumers and businesses to withdraw their money from Spanish banks intensified last month, with private sector deposits falling to 1.509tn euros (£1.199tn).

The data, released by the European Central Bank (ECB), show deposits fell by almost 5% compared with a month earlier, when the total held was 1.583tn euros (£1.257tn).

It comes as the country's economy continued to shrink in the second three months of the year, as it struggles with a deepening recession exacerbated by tough budget cuts.

The economy contracted by 0.4% between April and June, following a fall of 0.3% in the first quarter of 2012.

Spain fell back into recession in the first three months of this year, and the latest figures show the economy has contracted for the third consecutive quarter.

But the Spanish economy minister said that output would improve in the first quarters of 2013.

"In principle we believe we're at the point of the biggest contraction, which will continue into the second half of the year," the Secretary of State for the Economy, Fernando Jimenez Latorre, said.

"We'll start to see a correction from the first quarters of next year."

The GDP data comes as Spain raised 3.6bn euros (£2.8bn) by selling short-term debt - just above its target.

The country's high borrowing costs have fallen recently on hopes that the ECB will intervene in the markets, helping Spain to avoid a bailout.

Prime (Berlin: 48P.BE - news) minister Mariano Rajoy is due to meet the president of the European Council, Herman Van Rompuy, in Madrid later - a week before the ECB discusses new measures to help Europe’s worst-hit nations.

Portugal is another country struggling with a deep recession and ongoing Government cuts.

Foreign inspectors are currently in the bailed-out country to assess its progress meeting budget targets.

It was agreed that Portugal would receive a bailout of 78bn euros (£61.9bn) in May 2011, but it must meet the bailout criteria set by the EU, ECB and International Monetary Fund.