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Run on banks will not happen, says Spanish government

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A run on Spain's banks is not going to take place, the country's government has insisted.

This week, credit ratings agency Moody's downgraded 16 of the nation's financial institutions, as a result of Spain's continuing economic difficulties. However, the Spanish government is confident that this will not result in consumers rushing out and withdrawing their money en masse.

Speaking to BBC News, Treasury minister Inigo Fernadez de Mesa said this is a scenario he is not contemplating, as Spain's banks have "plenty of liquidity".

"They have been funded through the central government for the next two years, so there is no problem of liquidity at all in Spain," he insisted.

However, foreign exchange specialist HiFX is less optimistic about the state of affairs in the country's banking sector. Jason Gaywood, director at the company, said widespread withdrawals of cash have been reported across Spain over the last few days.

"The danger now is that panic will set in as the population races to get their money out, resulting in the self-fulfilling prophesy of a run on the banks," he commented.

Mr Gaywood said this occurred in Britain five years ago when Northern Rock sought financial assistance from the Bank of England, a move that prompted its customers to withdraw billions of pounds.

However, he said the situation in Spain is different because there is an acute risk of contagion. Indeed, Mr Gaywood said the country has become a "huge concern" to the whole eurozone, as it has a much bigger economy than other beleaguered nations, such as Italy, Portugal, Greece and Ireland.

He warned that if the situation persists, the desire and the capability to support sovereign nations and financial institutions will eventually disappear. Mr Gaywood added that it is almost becoming inevitable that the "break-up of the crippled euro" will take place at some point.

The downgrading of Spain's banks has already impacted on the performance of European shares on the financial markets, while the crisis could also affect business money transfer activity as well.

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