Dire Signs for Spanish Economy

Spain's housing and banking sectors continue to deteriorate, grim new government data showed Wednesday, providing the latest indication that the country's economy remains caught in a protracted recession. House prices declined at the fastest pace since the start of the crisis in the second quarter, the public ministry said, while bank deposits saw a record decline in May from a year earlier, and bad loans increased for a 14th month in a row, the Bank of Spain reported. Spanish banks saw a further reduction in their pool of deposits in May. According to new data, total deposits from the private sector shrank by 5.75% from a year earlier, to 1.327 trillion euros ($1.629 trillion). WSJ's Santiago Perez reports. Photo: Reuters Streaming Coverage Follow every article, blog post, video and tweet on the debt crisis from our reporters across Europe. The withering economy is increasing pressure on Prime Minister Mariano Rajoy's government to shore up confidence in the country's public finances and establish a firm footing for a much needed recovery in hiring and wage growth. But Mr. Rajoy acknowledged Wednesday in a speech to parliament that the government's prescription of spending cuts and higher taxes probably won't produce benefits in the short term. Enlarge Image TK "This government can't decide between a good and a bad choice," Mr. Rajoy said. "This government has to choose between the bad and the even worse." Spain plans to sign an agreement with the European Union to secure €100 billion ($122.95 billion) of bailout funds for its struggling banks Friday, and any lender that accesses the emergency capital will have to impose losses on shareholders. Total private-sector deposits held in the country's banks shrank 5.75% from a year earlier in May to €1.327 trillion. Some €7.4 billion were withdrawn compared with April, the data showed. The pool of bad loans jumped to €155.84 billion, or 8.95% of total loans, up from 8.72% in April. "The numbers confirm that there is an actual outflow of deposits from Spain right now," said Carlos Peixoto, a bank analyst with BPI Banco in Portugal. Euro Zone by the Numbers The 17-nation euro zone is a collection of countries with vastly different economic profiles. See how they stack up on the major measures. View Interactive Euro Zone Crisis Tracker See economic, political and markets news from across Europe as governments and financial institutions deal with the continuing debt crisis. View Interactive Charting the Euro Zone Crisis Key Players in the Crisis: Bios, Quotes More photos and interactive graphics