Once the beacon of Spain’s new economic grandeur, the Mediterranean region of Valencia has become a symbol of all that is wrong with the country.
Over the last decade, surfing on a property boom, Valencia spent billions hosting the America’s Cup sailing competition and the European Grand Prix motor race, launching Hollywood-style movie studios and building the biggest aquarium in Europe, a Sydney-style opera house and several museums.
However, years of free spending, coupled with a hangover from a burst real estate bubble and the collapse of local banks, have put Valencia on the brink of being bailed out by the central government — which has huge budget problems of its own.
The building sector’s implosion has forced into the open allegations that corrupt Valencian politicians, developers and bankers were in cahoots during a decade of easy money at low interest rates after Spain joined the euro in 1999.
Valencia and other indebted regions have become a liability for Spanish Prime Minister Mariano Rajoy, in office since December, as Spain sinks into a second recession since 2009 and investors speculate that it may follow Greece, Portugal and Ireland into the arms of an international bailout.
Valencia’s problems are particularly embarrassing for Rajoy, who has made austerity central to his policies, as his center-right People’s Party has run the region since 1995, being re-elected four times in the process.
“They said it was all to put Valencia on the map, and that’s what they did, put us on the map, for corruption, for waste ... bringing shame on Valencia,” said Ignacio Blanco, a member of the regional legislature for the leftist Esquerra Unida party.
Valencia, home to 5 million people, is not the only one of Spain’s 17 autonomous communities with debt problems.
Several of the regions, which account for nearly half of all public spending in Spain, are facing liquidity problems and their massive overspending pushed the nation’s budget deficit last year to 8.5 percent of GDP, overshooting a 6 percent target agreed with the EU.
Valencia can no longer borrow funds from the banks or markets. Standard and Poor’s credit agency rates Valencia’s bonds as junk and said in February that the central government would probably have to provide further extraordinary support to help the region service its debt this year.
If it cannot cut its deficit drastically, Valencia may become the first of the autonomous communities, which control their own health and education spending, to have its budget taken over by the central government under new austerity laws.
In January Valencia delayed a 123 million euro (US$162.80 million) payment to Deutsche Bank by a week and local press reports said the central government had to underwrite the payment.
Valencia’s finance head did not respond to repeated requests for an interview on the region’s debt situation.
The Generalitat, as the Valencian government is known, is sitting on 4 billion euros in unpaid bills to street cleaners, healthcare suppliers and other providers. The central government is now providing emergency lines of credit to get the providers — many of them small companies — paid.
In return for the loans, Valencia must cut its deficit to 1.5 percent of its economic output from 3.68 percent last year.
Beyond the money owed to the providers, Valencia has 20 billion euros in other debt, the second-biggest regional pile after its wealthier northern neighbor Catalonia. Valencia and Catalonia are Spain’s two most indebted regions, both with debt equalling 20 percent of their yearly economic output.