Spain’s risk premium rose to a new record high on Friday after the Valencian regional government formally asked central government for funds to help pay the region’s mounting bills.
After the weekly cabinet meeting, Finance Minister Cristóbal Montoro announced that the government was cutting its economic growth forecasts for 2012 and 2013 because of the rise in interest rates Spain will have to pay for its debt, hikes in Social Security costs and increases in pensions. The minister said that public spending could rise by as much as 9.2% in 2013.
The minister also predicted that the unemployment rate would rise to 24.6 percent by the end of the year — up slightly from April’s figure of 24.3 percent, but forecast a slight decrease for next year. Things will start to pick up in 2014, he said, when unemployment is expected to drop to 23.3 percent and in 2015 with 21.8 percent.
Valencia is Spain’s most indebted region, followed by Catalonia and Andalusia. Last May, Catalan premier Artur Mas publicly asked the central government to come up with a mechanism to help regions pay their bills.
Valencia government officials have announced that they will be the first region to formally tap into the Regional Liquidity Fund (FLA), a system created just over a week ago that allows cash-strapped regions to access financing but under stringent guidelines.
“Valencia is not getting a rescue,” said deputy regional premier José Císcar during his own news conference. “We are tapping into a mechanism of financing that more regions will be using in the coming days, but without any more adjustments.”
Císcar declined to put a figure on how much Valencia would need, but some financial forecasts show the region may require as much as three billion euros in emergency funding.
The proposed 18-billion-euro FLA reserve will be financed mostly by state-administered public debt, plus a loan from the national lottery agency to the tune of six billion euros.