Newspaper article International Herald Tribune

Catalonia's Aid Request Undercuts Spain ; Region's Crisis Highlights Country's Struggle to Meet E.U. Budgetary Demands

Newspaper article International Herald Tribune

Catalonia's Aid Request Undercuts Spain ; Region's Crisis Highlights Country's Struggle to Meet E.U. Budgetary Demands

Article excerpt

The country's most economically important region requested more than EUR 5 billion, underscoring a growing regional debt burden as the country struggles to pull out of its economic tailspin.

The most economically important region of Spain, Catalonia, has asked the national government for more than EUR 5 billion in emergency financing, underscoring a growing regional debt burden as the country struggles to pull out of its economic tailspin.

Catalonia can no longer obtain loans in the financial markets to support its debt, it said in making the request Tuesday. Just last month, the Valencia and Murcia regions said that they would need help from a new EUR 18 billion, or $23 billion, fund set up by the Spanish government.

The government of the Spanish prime minister, Mariano Rajoy, has been struggling to meet its budgetary commitments to the euro zone and avoid requiring a Greek-style bailout. Already, Europe has committed to lending Spain as much as EUR 100 billion to prop up its banking industry.

Whether Spain will itself have to request a European rescue depends in part on whether its 17 semiautonomous regions can clean up their finances and stick to budgetary targets this year. The inability of a region like Catalonia to meet its debt-financing obligations "is the big problem in this country at the moment," Mr. Rajoy said Tuesday.

Mr. Rajoy was speaking after meeting in Madrid with Herman Van Rompuy, the president of the European Council, which is the administrative arm of the European Union. Both men denied that Spain was already negotiating aid beyond the bank bailout. Mr. Van Rompuy said it would be up to Spain to decide whether to apply for more aid.

While Catalonia, whose principal city is Barcelona, has traditionally been among Spain's most prosperous and industrial regions, accounting for almost a fifth of the country's economic output, it has also accumulated EUR 42 billion in debt, the highest level among Spanish regions. Catalonia's credit rating was downgraded recently, and it has been shut out of the debt markets.

Last week, Fedea, a Spanish research group, forecast in a study that the country's regions would end this year with a combined deficit of 2.2 percent of gross domestic product, rather than the 1.5 percent target set by Mr. Rajoy's government.

Mr. Rajoy expressed confidence Tuesday that Spain's economic situation would be much better in 2013 and that its budgetary imbalances would be overcome.

But Spain's national statistics institute reduced its economic readings this week for both 2010 and 2011, indicating that Spain had gone into recession during the fourth quarter of 2011, one quarter earlier than originally estimated. The revised data also indicated that the Spanish economy had contracted 0.4 percent in the second quarter of this year from the previous three months. …

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