Rajoy Delays Spain Bailout as Regions Line Up for Aid
Prime Minister Mariano Rajoy delayed seeking a second rescue for Spain while pledging to continue bailing out its regions as Valencia requested more money to settle bills and cover debt.
Rajoy spoke today following a meeting in Madrid with French President Francois Hollande. Catalonia, Valencia and Murcia this week claimed more than half of an 18 billion-euro ($23 billion) fund announced by Rajoy last month to help the regions face bond redemptions and finance their deficits in the second half.
A Valencia official who declined to be identified in line with government policy said the region will seek another 1 billion euros from the central government mostly to pay education and health bills.
The country’s regions risk overwhelming a plan to tackle the euro area’s third-biggest budget deficit. They were responsible last year for most of Spain’s overspending, which remained nearly unchanged from 2010 at 8.9 percent of gross domestic product.
Rajoy reiterated Spain won’t seek a second bailout until European leaders make aid conditions clear. Spain locked in as much as 100 billion euros in international aid for banks last month. The yield on Spain’s 10-year benchmark bond rose 13 basis points at 5:44 p.m. in Madrid, widening the gap with similar German maturities to 5.27 percentage points.
Rajoy said the regions’ situation is “no surprise” and that there is no risk the 18 billion-euro fund may not be enough, because the government anticipated bond redemption needs through the end of the year. Rajoy said the state has been helping the regions overcome a liquidity squeeze since his government came to power and it will continue as long as necessary.
“Everything depends on Andalusia now,” said Juan Rubio- Ramirez, an economist at Duke University in Durham, North Carolina. “If Andalusia asks for aid, it could be a similar amount to Catalonia and that means the fund may not be enough.