Only three regions to snub Regional Liquidity Fund

Of Spain’s 17 cash-strapped regions, only three – Madrid, Galicia and La Rioja - have categorically ruled out tapping the Regional Liquidity Fund (FLA), which the central government is in the process of setting up, with funding of 18 billion euros.

The surge in Spain’s risk premium has cutting the regions off from funding from the wholesale debt markets, sparking the need to create the FLA, which will be in operation only until the end of this year.

Catalonia has flagged it plans to seek just over 5 billion euros from the fund, Valencia has indicated it wants 4.5 billion, while Murcia plans to ask for 300 million. Prime Minister Mariano Rajoy has said the FLA will be sufficient to cover all of the regions’ needs.

The government has conditioned access to the fund to regions meeting their deficit-reduction target for this year of 1.5 percent of GDP. Recently approved legislation allows the central government to directly intervene in the finances of regions that fall short of their targets.

However, some regions have expressed fears, the government might take advantage of their plight to eventually scale back the scope of their competencies.

Meanwhile, the leader of the Catalan branch of the ruling Popular Party, Alicia Sánchez-Camacho said the Finance Ministry has already approved an advance of 120 million euros to the region to tide it over until the FLA is up and running. The funds will be used for current items such as public-sector wages. “The government of Spain will do activate all the measures necessary to guarantee the liquidity of Catalonia,” Sánchez-Camacho said.

Andalusia also wants an advance of one billion euros to cover immediate liquidity needs.