Hispanobonds will be subject to “strict conditionality”
The Spanish government will launch a new mechanism to issue regional debt bonds on Thursday. This will allow autonomous communities to finance themselves through debt guaranteed by the Spanish Central Treasury. The Spanish secretary of Public Administration, Antonio Beteta, said the regions will have to comply with a strict set of additional conditions to benefit from hispanobonds.
Madrid (ACN).- The autonomous communities in the Spanish state, such as Catalonia, may benefit in the coming days from the new regional debt bonds, the so-called \u2018hispanobonds\u2019. The Spanish government is planning to launch them on Thursday in order to allow highly indebted regions to finance themselves through debt guaranteed by the Spanish Treasury.
Catalonia is facing big financing problems because of the crisis, the bad situation of the Eurozone, and its fiscal deficit within Spain, which represents about 9% of GDP each year. In other words, Catalonia gives around \u20AC18 billion annually to the rest of Spain and in turn it does not receive the investments and payments that it is supposed to. For example, the Spanish government owes more than \u20AC2.2 billion to Barcelona from the 2011 budget. Therefore, Catalonia is struggling to pay for its more basic services and has been trying to finance itself by issuing one- and two-year bonds with quite high interest rates.
The objective of the so-called \u2018hispanobonds\u2019 is to lower the interest rates that the regions are asked to pay to finance themselves in the markets. This, in turn, would help to avoid some regions, such as Valencia, going into bankruptcy. It is not clear, however, how exactly these hispanobonds will work, and whether or not they will be issued jointly by all the regions or separately. The Spanish secretary of Public Administration, Antonio Beteta, said on Tuesday that the regions that participate in the bonds program will have to comply with a strict set of additional conditions to benefit from hispanobonds. That is to say, Madrid will ask them to go the extra mile and introduce even more spending cuts and reforms than the others.
The regional ministers for the Economy will meet on Thursday in Madrid, when the hispanobonds will be launched. It is also expected for the meeting to be an opportunity to change the deficit targets for the autonomous communities, now that Spain has been given one more year to meet its own European objective of 3%. Spanish regions are asked to have a 1,5% deficit by the end of the year, an unrealistic objective for many of them. Even Catalonia, that has already announced three spending reviews with up to 10% cuts, is struggling to meet the challenge because of the recession and the money that the Spanish government is failing to pay for services that are supposed to be financed or co-financed by it.