Heavily indebted Valencia asks Spanish government for bailout
SPAIN’S heavily indebted eastern region of Valencia said on Friday it would apply to Madrid for financial help, spooking markets and complicating central government efforts to stave off a full-blown bailout.
Separately, the government cut its economic growth forecasts for 2012 and 2013, indicatating they now expected the country to stay mired in recession well into next year.
It will use the revised forecasts as a base to draw up the 2013 budget, for which the ceiling has been set at €127bn compared to €119bn in 2012.
Valencia, Spain's most indebted region alongside its northern neighbour Catalonia, sought help under a €18bn programme passed on Thursday and aimed at helping regional finances.
Madrid also passed on Thursday most of the measures of a new package of spending cuts and tax hikes worth €65bn.
"Valencia, like in other autonomous regions, is suffering the consequences of the liquidity shortage in markets due to the economic crisis," the regional government - which needs to repay €2.85bn of debt by the end of the year - said in a statement.
Spain's regions, currently shut out of international debt markets, have been pushing for months for a financing mechanism to help them find the liquidity they need to meet their financial obligations.
Treasury Minister Cristobal Montoro said after a weekly cabinet meeting that the regional funding plan carries strict fiscal criteria that beneficiares must meet while providing regular updates on its finances.
"The Valencian government will have an obligation to meet new conditions to gain access to this liquidity," he said.
The euro fell broadly on Friday and European equities extended losses after the announcement.
Spain's 10-year debt yield hit a new record high at 7.23pc, while the premium investors demand to hold Spanish 10-year paper rather than German benchmark debt went above 600 basis points for the first time since the launch of the euros 13 years ago.