The Spanish autonomous region of Catalonia, which generates around one-fifth of Spain’s economic output, has said it will request a €5-billion emergency credit line from Madrid, heightening debt fears a week before the European Central Bank is to unveil its bond-buying plan.
The government of Catalonia, which has debts of €42 billion, announced yesterday (28 August) it could no longer get loans on the financial markets to support its debt and would request aid from Spain's regional bailout fund.
The northeast region will become, after Valencia and Murcia, the third of Spain's 17 autonomous regions to formally request aid from the €18-billion government rescue fund.
The Spanish government said in July it was setting up a mechanism to help the regions repay their debts, using funds from the state lottery and bank loans. But the facility is still not up and running.
In all, some six regions are expected to need central government help to meet deficit targets and pay service providers.
Catalonia has called over the past year for the introduction of some form of mutualisation of debt for Spain's regions to help bring down its financing costs. The region’s government insists its fiscal position would be better if it were able to create its own tax agency, which it hopes to establish in the future.
The request came a week ahead of a meeting of eurozone central bankers that make up the ECB's governing council, which is expected to unveil details of the bond-buying programme on 6 September. But sources reportedly doubted whether this will be possible.
Spanish Prime Minister Mariano Rajoy has been struggling to meet its budgetary commitments to the eurozone and to avoid requiring a Greek-style bailout. Already, Europe has committed to lending Spain up to €100 billion to prop up its banking industry.
Whether Spain will itself have to request a full-blown European rescue depends in part on whether its powerful regions can clean up their finances and stick to budgetary targets this year. The fact that a region like Catalonia cannot meet its debt-financing obligations “is the big problem in this country at the moment,” Rajoy said yesterday.
Rajoy expressed confidence that Spain’s economic situation would be much better next year and that it would tackle its budgetary imbalances.
But the national statistics institute this week reduced the country’s economic results for both 2010 and 2011, indicating that Spain went into recession during the fourth quarter of 2011, one quarter earlier than originally estimated. The revised data also indicated that the Spanish economy contracted 0.4% in the second quarter of this year from the previous three months.
Spain has so far stuck to budgetary targets that anticipate an economic contraction of 1.5% this year and 0.5% in 2013.