Andalusia and Catalonia on Monday said they would have to ask for a bridge loan from the central government to cover their liquidity requirements until Madrid formally sets up the Regional Liquidity Fund (FLA).
The Andalusian commissioner for the premier’s office, Susana Díaz, said the region would ask Madrid for an advance of one billion euros, while it weighs up whether to tap the FLA.
“While the Spanish government proceeds to defining the conditions under which regions can tap the FLA, and given that other regions will ask for funding from it, the Andalusian administration has asked for this advance because we need liquidity,” Díaz told reporters.
Díaz pointed out that Valencia had already received a 300-million-euro advance from Madrid in June to cover its funding needs. Valencia recently increased the amount it plans to seek from the FLA by one billion euros to 4.5 billion. Murcia wants 300 million euros.
Catalonia intends to ask for 5.023 billion euros from the FLA liquidity fund
Meanwhile, the Catalan economic commissioner, Andreu Mas-Colell, said Spain’s most important region economically would have to ask for a bridge loan from Madrid if the FLA was not set up this month.
Catalonia intends to ask for 5.023 billion euros from the FLA, a sum that will only cover the repayment of loans maturing this year. The region has also said it is still having severe problems meeting payments to suppliers.
The spike in Spain’s risk premium has cut off the regions’ access to the wholesale debt markets, sparking they need to set up the FLA.
Mas-Colell lamented the fact that the FLA will only be in operation until the end of this year, and called for other funding mechanisms to help the regions overcome their financial difficulties until the crisis runs its course, and they can return to the debt markets. He revived the idea of so-called “hispanobonos,” an arrangement under which debt issued by the regions would be guaranteed by the national Treasury.
Mas-Colell was equivocal about Catalonia’s capacity to meet its deficit-reduction target for this year of 1.5 percent of GDP, a condition imposed by Madrid on the regions that access the FLA. He said meeting the target depended on whether or not the health and education reforms imposed on the regions by the government of Prime Minister Mariano Rajoy would generate the expected cost savings. The other point he identified was the successful completion of the privatization of the Aigües Ter-Llobregat water treatment company, from which the region hopes to take in 300 million euros, as well as the sale of the Vallvidrera and Cadí toll roads which it expects to generate another 420 million euros.
Mas-Colell also warned Catalonia may also have to impose yet more austerity to meet next year’s deficit target of 0.7 percent of GDP, despite previously saying that the belt-tightening measures introduced this year were the last.