Spain: Fiscal woes continue as several regions request bailout
September 3, 2012
Spain's autonomous regions remain on the centre stage of the country's fiscal crisis. On 28 August, Catalonia - Spain's largest regional economy and its most indebted region - announced that it will ask the central government for a EUR 5 billion bailout in order to meet refinancing obligations. Catalonia thus becomes the third autonomous region, following Valencia and Murcia, to tap the bailout fund created by the central government in July. The total sum requested by the three regions amounts to EUR 9.8 billion, more than half of the fund's EUR 18 billion total capacity. Furthermore, four other regions have already hinted at the possibility of requesting financial assistance as well. Spain's regions account for over a third of overall public spending, including key areas such as education and healthcare, and have been unable to access capital markets since 2010. Spain's fiscal problems continue to put the country at the forefront of the Euro Area debt crisis, as investors remain sceptical that the government will be able to meet its fiscal goals in the midst of a deepening recession that has caused tax receipts to plummet. Against this backdrop, the yield on Spanish debt continues to hover close to the critical 7% threshold, and only conjecture regarding potential debt purchases by the ECB has brought down yields from the historic highs reached at the end of July.