Valencia And Spanish Regional Debts Increase Euro Area Fears

During the end of a tumultuous week in Spain that has witnessed thousands of Spaniards demonstrating against imposed austerity measures and tax increases while receiving an approved banking bailout, new concerns are emerging on Friday that regional Spanish debts may lead Spain to request a full scale bailout for the country.

Regional governments in Spain have payments totalling € 15 billion ($18 billion USD) in outstanding debts that are owed in late 2012. 

Across Spain’s diverse regions, Valencia and Catalonia are the most indebted.

Valencia has already utilized several government credit lines during the first half of the year to meet their debt obligations but the indebted region is still required to repay € 2.85 billion euros by the end of 2012. 

As the Spanish government and Prime Minister Mariano Rajoy established new spending guidelines for the 2013 budget amid a spike in borrowing costs, officials in Valencia said they would tap an emergency loan fund created last week.

Earlier in the day on Friday, Euro area finance ministers approved the € 100 billion package for Spain’s cash-strapped banks.

Non-Compliance with Austerity Measures

To complicate matters further, regional officials in the Basques, Catalonia, and Andalusia have stated they would not implement all the austerity cuts because it would end up jeopardizing the regional education and health care systems they manage.

Economists are expecting the regional governments of Spain to miss their deficit targets of 1.5 %.

Spain also cut its economic forecast for 2013.

Yields are Spain’s 10 year bond have surged 25 basis points to 7.264 after reaching 7.269 earlier in the day.

The Euro has fallen to 1.2153 against the U.S. dollar, a two week low.

The S&P Financials are among the hardest hit in trading along with commodity shares which are trading lower due to weakness in Europe, the rise of the U.S. dollar, and Beijing’s latest decision to not soften property control practices. 

The yield on the 10 yr. U.S.  fell to 1.457, down 0.058 or 3.83% in afternoon trading.

 

 

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