Blogging from the Highlands of Scotland until I return to the Murcia region of Spain in early October for a few weeks
'Fair and softly goes far' - Miguel de Cervantes

Sunday, 22 July 2012

Murcia Region to ask for financial help from Spanish government

(Please see IMPORTANT UPDATE at end)

Over the past few days I have been reading increasingly alarming (but not unexpected) reports that the 100 billion Euro 'bail-out' agreed by fellow Eurozone members to help bolster Spain's banking industry has largely been discounted by the markets, a mere few days after the agreement was reached - Spain's borrowing costs in the markets have edged back above 7 per cent for 10-year bonds and even shorter term bonds are now edging higher too (above 6 per cent I gather).

Last week the Spanish government announced an 18 billion Euro fund (itself to be funded by a 6 bn loan from the Spanish national lottery, with the rest coming from the Treasury - where the Treasury is getting it from is not revealed) to help those regions of the country which need it. In any case, a couple of the regional governments have already indicated that they would like some of this funding - the Valenciana regional government on Friday was the first to indicate it would ask for help "because it cannot find the funds to meet its financial obligations", and although no amount was mentioned. according to the linked report El Pais have discovered today that the amount is likely to be about 2 bn Euros.

Today, Murcia Region becomes the second region to indicate it needs help, with the regional President, Ramon Luis Valcarcel, reportedly today telling local media outlet La Opinion de Murcia that 200 or 300 million Euros would be requested, adding that: "No one should think that they will give us the money as a gift". Without being unduly cynical, I wonder if this has got anything to do with the 200 million Euro guarantee that the Murcia Region government issued a year or so ago to allow construction of the so far unopened new regional airport at Corvera to be completed and which requires urgently to be refinanced (or so I read recently).

This is unfortunately only one aspect of the troubles facing Spain right now. Continuing high unemployment, generally but especially amongst young people, sees regular large demonstrations in major cities and I have been reading regular reports about the numbers of Spaniards, again particularly amongst younger better-educated ones, seeking their fortunes abroad, either in other EU member countries or in Spanish-speaking Latin American countries and others. No doubt those who are successful will send remittances back home, but the country will still have lost some of its younger, brighter people.

It would not be so bad if it was likely the Eurozone bail-out and the other 'austerity' measures the government is implementing would help in the longer term, but my own view is that these measures will only put off for a little longer the day of reckoning. The real solution, although very painful in the short term, is obvious .. Spain and some of the other weaker economies need to ditch the Euro and revert to updated versions of their former currencies as quickly as possible. (I have mentioned this in earlier articles so I won't repeat myself.)

IMPORTANT UPDATE (Monday 23JUL2012 07.55 BST) The Murcia Region government has now roundly denied it will ask Madrid for financial assistance and admits merely to studying it. It says that locally-based media outlet La Opinion de Murcia had misinterpreted/misreported what Sr Valcarel had said; he was apparently referring to the need to set up "hispanobonds" to be backed jointly by all regions in order to meet debt and deficit payments. Well let's wait and see what happens; my own feeling is that just as Germany in the context of the wider Eurozone has shown extreme unwillingness to take similar action, not all Spanish regions would be enormously happy at having to stand behind more profligate regions to save them from their own financial mismanagement, specially when their own budgets are likely to be under severe pressure.

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