Spain's foreign exchange reserves vanish

Spain's foreign reserves are plummeting, and could trigger a major financial crisis - despite Spain's membership of the eurozone.

The central bank's holdings of foreign currencies and gold have fallen to €13.2bn, equivalent to just 12 days of imports.

Over the past two months the Banco de España has sold off 80 tonnes of gold. The bank has also sold off its holdings of US Treasuries, British gilts, and other investments at a similar rate.

Total reserves have now fallen by two thirds from €41.5bn in early 2002.

Why has the Spanish central bank sold off its gold and foreign currency reserves? The problem is the huge balance of payments deficit which just keeps growing. It has now reached 9.5% of GDP and reached €8.6bn in January alone.

Spain could now cause the eurozone to collapse. Property prices are also collapsing in the country as hundreds of thousands of houses are looking for buyers. The shares of housebuilder Astroc have fallen 77% since February, and other share prices of builders have collapsed. The next stage of the crisis is for the banks to get into trouble and their bad loans to property buyers turn sour.