Catalonia fears “major liquidity” problems if Madrid loan is delayed

Catalonia on Wednesday urged the central government to activate the Regional Liquidity Fund (FLR) as soon as possible and disburse the 5.023-billion loan it has requested in order to prevent the collapse of its treasury operations.

Francesc Homs, the spokesman for the Generalitat, as the Catalan government is known, warned that the region faced "major liquidity problems" if it did not receive the funds soon. Madrid has yet to set up the FLR, which will have a funding total of 18 billion euros.

Catalonia insists that the 5.023 billion euros it is seeking is only to cover debt maturities falling this year, which amount to 5.775 billion euros, including 2.639 billion owed to retail investors. The amount asked for does not resolve money owed to suppliers. The region suspended payment of bills for education and health services in July. "The problems continue to exist," Homs said. "If I were to say anything else, I would be telling a lie."

Economy Minister Luis de Guindos said Wednesday that the "basic condition" that will be imposed on Catalonia in exchange for receiving the loan from the FLR will be to meet its obligation to lower its public deficit to 1.5 percent of GDP this year.

"The government appreciates the effort being made by the Catalan government and does not have the slightest doubt that it will continue to make an effort to meet the deficit target for this year, and that set for next year," De Guindos said.

A European Commission spokesman on Wednesday also said the Spanish regions and the central government are obliged to meet their deficit reduction commitments. Homs has said the Generalitat would not accept any loan that imposed "political conditions," but did not elaborate on what exactly he was referring to.

Valencia has said it will request more than two billion euros from the fund, while Murcia wants 300 million. Andalusia on Wednesday did not rule out tapping the fund provided the conditions attached did not curtail any of the region's own areas of responsibility.

The EC spokesman stated Brussels is confident the FLR would be sufficient to meet the needs of the regions.