Spain will not require a full sovereign bailout, says Luis de Guindos

The Spanish Economy minister said on Monday that the state will “absolutely not” require a full rescue package such as the one taken by Greece, Ireland or Portugal. Speaking at a parliamentary hearing, De Guindos said that the Spanish economy is competitive and has “capacity to grow” unlike other struggling European countries. However, markets seem unconvinced by Luis de Guindo’s remarks, pushing the ten-year Spanish bond yields to more than 7.5%. Doubts about the autonomous communities financing capacity are also affecting the situation, especially after Valencia announced that it will ask for about 3,500 million euros from the Spanish Liquidity Fund. Catalonia, the most indebted community in Spain, is still considering whether to use the money from the fund, and will only decide after studying “the set of conditions” attached to it.


July 23, 2012 09:15 PM

Barcelona (ACN).- The Spanish Economy minister, Luis de Guindos, insisted on Monday that Spain will “absolutely not” require a full sovereign bailout package such as the ones taken by Greece, Portugal and Ireland. Speaking from Madrid, Luis de Guindos said that the Spanish economy has “capacity to grow” and therefore will be able to overcome current difficulties. He added that Spain has a competitive economy, unlike “other” European countries under stress, and urged the European Central Bank to start a fresh round of bond purchases in the markets to help reduce the high bond yields.

In fact, Luis de Guindos will visit his German counterpart in Berlin tomorrow, Wolfgang Schäuble, in order to discuss the current situation and try to calm the markets about the crisis in Spain and the Eurozone. However, on Monday markets were punishing Spain and the euro, especially after the Bank of Spain confirmed that recession has accelerated in the last months.

The announcement by the Valencian autonomous community that it will seek help from the central government also discourages investors that are now wondering which region will be next. There are rumours that Murcia could also apply for financial help, while the Catalan government said it will only consider the possibility after “studying in detail” all the conditions attached to the access to the liquidity fund. Valencia said on Monday that it needs about 3,500 million euros. The Spanish fund has up to 18,000 million to help regions under stress, but the money will only be provided to those autonomous communities that meet a “strict conditionality”, the Spanish government said.

The situation in Catalonia is especially critical. Catalonia is the most indebted autonomous community in Spain, according to the latest figures by the Spanish Central Bank. The Catalan government is running out of options to pay its bills and has already asked its residents to buy patriotic-bonds. Artur Mas’ executive has been campaigning to get a new fiscal pact with Spain that would see this autonomous community raising and managing all its taxes like the Basque Country and Navarra do –and paying a precise amount to Spain to finance ‘common services’ such as Defence or the Royal Family.

Unlike the Basque Country, for the last 30 years Catalonia has been paying Spain about 9% of its GDP in money that never returns in the form of investments or services. This money is supposedly used to help developing poorest regions in Spain, but Catalonia usually finds itself getting a bad deal, being below some of the regions that is actually subsidising when GDP per capita terms are considered. Valencia and the Balearic Islands are in a similar situation. Therefore, Catalonia struggles to finance basic services despite being one of the most populated and richest autonomous communities in Spain.

The solution, for the Catalan government, would be a new fiscal pact with Spain. But if this deal is unachievable, then many political and economical scenarios may come true. Catalonia might be forced to ask for a rescue package from Spain, or it might decide to open new and unexplored unilateral possibilities such a referendum on the fiscal system, or even on independence.