Catalonia seeks Spain bailout

29 Aug 2012, 7:31 am   -   Source: AAP
Share This
0 
+ Comment
1
The ECB is expected to act only if Madrid accepts new conditions by formally applying to the eurozone bailout funds, the European Financial Stability Facility and its successor the European Stability Mechanism. (AAP)

The ECB is expected to act only if Madrid accepts new conditions by formally applying to the eurozone bailout funds, the European Financial Stability Facility and its successor the European Stability Mechanism. (AAP)

Spain's Catalonia region says it needs a 5 billion euro bailout from the central government, which is itself lurching closer to a sovereign bailout.

Spain's debt-struck Catalonia region reached out Tuesday for a 5.0 billion euros ($A6.07 billion) central government rescue as the entire nation lurched closer to a sovereign bailout.

The northeastern region's government, facing huge repayments on its 40-billion-euro debt, said it would tap an 18-billion-euro liquidity fund set up by Madrid to finance troubled regions.

"The government has decided to request participation in the liquidity fund," Catalan government spokesman Francesc Homs told a news conference.

But the region, responsible for one-quarter of Spanish economic output and in open conflict with Madrid over its deficit-cutting demands, would do so "without accepting political conditions," he said.

Catalonia's announcement highlighted Spain's tremendous financial squeeze, feeding expectations that the eurozone's fourth largest economy will be forced to seek a broad bailout - and soon.

Spanish Prime Minister Mariano Rajoy said the central government would help Catalonia, "as we help the rest of the regions."

Rajoy's conservative government snatched a 100-billion-euro eurozone rescue loan in June to salvage the balance sheets of its banks.

But analysts believe Spain's high borrowing costs will still force it to seek a sovereign bailout before a repayment crunch in October when more than 30 billion euros in debt payments are due.

The Spanish government has called on the ECB to come to its aid by resuming its program of purchasing government bonds.

But the ECB is expected to act only if Madrid accepts new conditions by formally applying to the eurozone bailout funds, the European Financial Stability Facility and its successor the European Stability Mechanism.

The prospect of ECB intervention drove down Spain's short-term borrowing costs as the Treasury raised 3.6 billion euros on Tuesday, luring solid interest on the market.

But the deep underlying economic troubles remain.

Latest data showed Spain was engulfed in a deepening recession that has barely released its jobs-killing grip since a global economic crisis and property crash struck in 2008.

On a quarterly basis, the economy shrank by 0.4 per cent in the second quarter of 2012, building on a 0.3-per cent slump in the first quarter, the National Statistics Office report said.

Newly revised figures also showed that Spain has barely escaped recession since mid-2008, when a property crash cast millions out of work and left Spanish banks with piles of bad debts.

Spain is still reeling from that calamity, with jobless rate of nearly 25 per cent.

European Union president Herman Van Rompuy, in Madrid to discuss the eurozone crisis with Rajoy, said the Spanish government would have to choose whether it needs broader help.

"Spain already has a large program available to it to restructure its financial sector, which deals with the most active problem of the economy," he said.

"It is up to the Spanish government to take this decision and the Spanish government is strong enough to make this decision."

  • Follow us: 
  • Follow us on Facebook
  • Follow us on Twitter
  • Follow us on Youtube

Your Comments

the Catalan Bailout

boxedpress - from Barcelona, 9 months ago

Austerity is the cause of the Catalan bailout. http://cort.as/2P7B

Join the Discussion

Name
City / Suburb E.g. Artarmon, Sydney
Title
Comment
You have characters remaining.
Validation
What's this?
This is a captcha-picture. It is used to prevent mass-access by robots.
All submitted comments become the property of SBS. They are moderated, so we reserve the right to edit comments and remove HTML tags. Not all submitted comments will be published. Publication does not mean we endorse the opinions expressed. Please read our terms and conditions for more information.