Tue, Jul 24, 2012 - Page 15 News List

Spanish regions need 36bn euros

DOWNWARD SPIRAL:External factors such as skeptical investors driving up Spain’s borrowing costs were compounded by the internal problems of its indebted regions


A southeastern province is considering becoming the second region to ask for funds to help repay creditors and settle outstanding bills at a time when Spain is trying to avoid a sovereign bailout.

The region of Valencia on Friday said it would be the first to tap a fund designed to help out Spain’s 17 semi-autonomous regions. Murcia government leader Ramon Luis Valcarcel said his region is now considering doing the same.

Murcia’s government said in a statement late on Sunday that “regarding the liquidity fund provided by the state, the regional government has repeatedly stated that it is studying whether to apply for it.”

The fund was created on July 13 and will have 18 billion euros (US$22 billion) in capital, a third of which loaned by the state-owned company that runs Spain’s lotteries.

Leading newspaper El Pais, citing treasury and regional sources, said on Saturday that Spain’s 17 indebted semi-autonomous regions have debts of 140 billion euros of which 36 billion euros need to be refinanced this year.

Calls to the Spanish Ministry of Economy late on Sunday went unanswered.

Investor concern about regional debt grew when the central government was forced to revise Spain’s budget deficit for last year upwards for a second time to 8.9 percent in May — an embarrassing adjustment that had to be made after four of the regions confirmed they had spent more than previously forecast.

The then-recently elected conservative government had earlier revised the figure to 8.5 percent of GDP, from the 6 percent forecast by the outgoing Socialists.

Media reports on Sunday said five other regions were also contemplating asking for aid from the fund: Catalonia, Castilla-La Mancha, the Balearic Islands, the Canary Islands and Andalucia, news that is bound to cause jitters on international markets.

Spanish long-term borrowing costs jumped to record highs yesterday as investors turned increasingly skeptical about government efforts to stabilize a stricken banking system and the public finances.

In early trade, the yield — the rate of return — on the benchmark Spanish 10-year government bond jumped to 7.343 percent from 7.225 percent on Friday, well above the 7 percent danger level.

The Madrid stockmarket fell sharply at the opening, losing about 2 percent after it slumped nearly 6 percent on Friday.

Other European markets were lower yesterday and borrowing costs for other struggling eurozone states also were under pressure as the debt crisis returned with a vengeance despite an EU bank rescue deal for Spain earlier this month.

“The fresh tensions over the eurozone will hit risk assets,” Credit Agricole CIB analysts said in a note.

The Italian 10-year bond yield also spiked yesterday, jumping to 6.302 percent from 6.149 percent.

Any yield over 6 percent is widely seen as unsustainable for long-term fund, with 7 percent the level at which Greece, Ireland and Portugal had to ask for outside help.

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