Second Spanish region may seek government aid

Topics: From the Wires,

MADRID (AP) — 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 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 ($22 billion) in capital, a third of that is a loan from the state-owned company that runs Spain’s lotteries.

Leading newspaper El Pais, citing treasury and regional sources, said Saturday that Spain’s 17 indebted semi-autonomous regions have debts of €140 billion of which €36 billion need to be refinanced this year. Calls to the economy ministry late Sunday went unanswered.

Investor concern about regional debt grew when the central government was forced to revise Spain’s 2011 budget deficit 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 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.

The yield on Spanish 10-year bonds shot up 0.25 percentage points to 7.22 percent on Friday after Valencia’s likely requirements became known, and the Spain’s benchmark Ibex stock index fell 5.8 percent.

Many Spanish regions are so heavily in debt due to the recession and a burst real estate bubble that they cannot individually raise money at affordable rates.

As a result, they are struggling to repay creditors and settle contract bills. Like the central government, many have enacted stinging austerity measures with cuts in health care and other services.

Investors fear the central government, which is also strapped for cash and faces high borrowing rates on bond markets, could come under increasing financial pressure if the regions need more help.

Those fears add to existing worries about saving Spain’s ailing banks, which will be rescued with up to €100 billion in eurozone loans agreed on Friday.

These troubles have intensified fears that Spain will be the next eurozone country after Greece, Ireland and Portugal to need a sovereign bailout.

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