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Catalonia Asks Spanish Government for Emergency Funds Shut Out of the Debt Markets, Catalonia Asks Madrid for Emergency Aid
(about 1 hour later)
MADRID — The most economically important region of Spain, Catalonia, asked the national government Tuesday for more than €5 billion in emergency financing, underscoring a growing regional debt burden as the country struggles to pull out of its economic tailspin. MADRID — The most economically important region of Spain, Catalonia, asked the national government on Tuesday for more than 5 billion euros in emergency financing, underscoring a growing regional debt burden as the country struggles to pull out of its economic tailspin.
The request by Catalonia, which says it can no longer obtain loans in the financial markets to support its debt, follows rescue pleas by the Valencia and Murcia regions. Both said last month that they would need help from a new €18 billion, or $23 billion, fund set up by the Spanish government. Catalonia says it can no longer obtain loans in the financial markets to support its debt. Just last month, the Valencia and Murcia regions both said that they would need help from a new 18 billion euro, or $23 billion, fund set up by the Spanish government.
The government of the Spanish prime minister, Mariano Rajoy, has been struggling to meet its budgetary commitments to the euro zone and avoid requiring a Greek-style bailout. Already, Europe has committed to loaning Spain up to €100 billion to prop up its banking industry. The government of the Spanish prime minister, Mariano Rajoy, has been struggling to meet its budgetary commitments to the euro zone and avoid requiring a Greek-style bailout. Already, Europe has committed to lending Spain up to 100 billion euros to prop up its banking industry.
Whether the government in Madrid will itself have to request a European rescue depends in part on whether its 17 semi-autonomous 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,” Mr. Rajoy said Tuesday. Whether Spain will itself have to request a European rescue depends in part on whether its 17 semiautonomous 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,” Mr. Rajoy said Tuesday.
Mr. Rajoy was speaking after meeting Tuesday in Madrid with Herman Van Rompuy, the president of the European Council, the administrative arm of the European Union. Both denied that Spain was already negotiating further aid, beyond the bank bailout. Mr. Van Rompuy said it would be up to Spain to decide whether to apply for more aid. Mr. Rajoy was speaking after meeting on Tuesday in Madrid with Herman Van Rompuy, the president of the European Council, the administrative arm of the European Union. Both denied that Spain was already negotiating aid beyond the bank bailout. Mr. Van Rompuy said it would be up to Spain to decide whether to apply for more aid.
While Catalonia, the home of Barcelona, has traditionally been among Spain’s most prosperous and industrial regions — accounting for almost a fifth of the country’s economic output — it has also accumulated debt of €42 billion, the highest among Spanish regions. Catalonia has recently suffered credit rating downgrades and has been shut out of the debt markets. While Catalonia, the home of Barcelona, has traditionally been among Spain’s most prosperous and industrial regions — accounting for almost a fifth of the country’s economic output — it has also accumulated 42 billion euros in debt, the highest among Spanish regions. Catalonia’s credit rating was downgraded recently, and it has been shut out of the debt markets.
Last week, Fedea, a Spanish research group, forecast in a study that the country’s regions would end this year with a combined deficit of 2.2 percent of gross domestic product, rather than the 1.5 percent target that has been set by Mr Rajoy’s government. Last week, Fedea, a Spanish research group, forecast in a study that the country’s regions would end this year with a combined deficit of 2.2 percent of gross domestic product, rather than the 1.5 percent target set by Mr. Rajoy’s government.
Mr. Rajoy on Tuesday expressed confidence that Spain’s economic situation would be “much better” in 2013 and that its budgetary imbalances would be overcome. Mr. Rajoy on Tuesday expressed confidence that Spain’s economic situation would be much better in 2013 and that its budgetary imbalances would be overcome.
But Spain’s national statistics institute this week reduced its economic readings 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 percent in the second quarter from the previous three months. But Spain’s national statistics institute this week reduced its economic readings 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 percent in the second quarter of this year from the previous three months.
Despite the most recent signs of a deeper recession, the government has so far stuck to budgetary targets that anticipate an economic contraction of 1.5 percent this year and 0.5 percent in 2013. Despite signs of a deeper recession, the government has so far stuck to budgetary targets that anticipate an economic contraction of 1.5 percent this year and 0.5 percent in 2013.
The fund from which Catalonia is requesting aid is still being assembled. Of the €18 billion total, €6 billion is to come from the national lottery, with the remainder drawn from the Treasury, with the backing of a banking syndicate. The fund from which Catalonia is requesting aid is still being assembled. Of the 18 billion euro total, 6 billion euros is to come from the national lottery, with the remainder drawn from the Treasury with the backing of a banking syndicate.
Luis de Guindos, the economy minister, said last week in an interview that the fund would soon be ready and that recipient regions would still be expected to hew to their budgetary targets. Luis de Guindos, the economy minister, said last week in an interview that the fund would soon be ready and that recipient regions would still be expected to meet their budgetary goals.
“At the end of the day, we are not going to let any region go down,” he said. “But liquidity will come with strong conditionality.” Regions, he added, “will have to carry out the fiscal consolidation that has been agreed.”“At the end of the day, we are not going to let any region go down,” he said. “But liquidity will come with strong conditionality.” Regions, he added, “will have to carry out the fiscal consolidation that has been agreed.”
Mr. de Guindos also said that he expected the extra capital needs of Spanish banks to reach about €60 billion, rather than the €100 billion agreed to in June by Europe’s finance ministers. Mr. de Guindos also said he expected the extra capital needs of Spanish banks to reach about 60 billion euros, rather than the 100 billion euros agreed to in June by Europe’s finance ministers.
But data released Tuesday suggested that Spanish banks continue to weaken. Private clients have recently been withdrawing money from Spanish banks at a higher rate than in previous months, with deposits falling 4.6 percent in July from a month earlier.But data released Tuesday suggested that Spanish banks continue to weaken. Private clients have recently been withdrawing money from Spanish banks at a higher rate than in previous months, with deposits falling 4.6 percent in July from a month earlier.
Meanwhile, the regions’ financial problems have created tension with the government in Madrid. Some regional politicians have openly challenged the austerity measures recently announced by Mr. Rajoy, including plans to scrap access to free health services for illegal immigrants. Among their main tasks, regions are in charge of health and education spending in Spain. The regions’ financial problems have created tension with the government in Madrid. Some regional politicians have openly challenged the austerity measures recently announced by Mr. Rajoy, including plans to scrap access to free health services for illegal immigrants. Among their main tasks, the regions are in charge of health and education spending in Spain.
Relations have been particularly strained between the Catalan regional government in Barcelona and Mr. Rajoy’s administration, fueling a long-running argument over the degree of fiscal and political autonomy that Catalonia should be granted.Relations have been particularly strained between the Catalan regional government in Barcelona and Mr. Rajoy’s administration, fueling a long-running argument over the degree of fiscal and political autonomy that Catalonia should be granted.
Francesc Homs, the spokesman of the Catalan government, said Tuesday that his government would not accept any “political conditionality” attached to the granting of the funds. Francesc Homs, the spokesman for the Catalan government, said Tuesday that his government would not accept any “political conditionality” attached to the granting of the funds.
In response, Mr. Rajoy said: “The government will help Catalonia, as it has done on many other occasions.”In response, Mr. Rajoy said: “The government will help Catalonia, as it has done on many other occasions.”
The problems of the regions come as the national government also faces an uphill struggle to meet its own refinancing obligations, though Spain’s borrowing costs have recently fallen back from their record highs of late July, following a pledge by Mario Draghi, the president of the European Central Bank, that the central bank would “do whatever it takes to preserve the euro as a stable currency.” The national government additionally faces a struggle to meet its own refinancing obligations, though Spain’s borrowing costs have recently receded from their record highs of late July, after a pledge by Mario Draghi, the president of the European Central Bank, that the central bank would “do whatever it takes to preserve the euro as a stable currency.”
On Tuesday, the Spanish Treasury sold €3.6 billion of bills at much lower interest rates than a month ago. For example, the rate paid on three-month bills was 0.946 percent, down from 2.434 percent a month ago. On Tuesday, the Spanish Treasury sold 3.6 billion euros of bills at much lower interest rates than a month ago. For example, the rate paid on three-month bills was 0.946 percent, down from 2.434 percent a month ago.
Analysts said that Spain was benefiting from expectations that the E.C.B. would step in with a bond-buying program that would help ease the pressure on Spain and perhaps pave the way for Madrid to receive further European funds on favorable terms. Whether such expectations prove correct could become clear as early as Sept. 6, when the E.C.B.’s Governing Council meets — the same day that Angela Merkel, the German chancellor, is scheduled to visit Madrid.
“The real test begins next month, when sentiment could worsen significantly if E.C.B.-backed measures to shore up Spanish and Italian debt markets fall short of expectations,” Nicholas Spiro, founder of Spiro Sovereign Strategy, a consulting firm in London that helps assess sovereign debt risk, wrote in a note to investors.