Spain could need €542bn funding by 2015, Open Europe warns

Between now and mid-2015, Spain could need €542bn funding, as well as a cash injection to its banks of an additional €100bn, according to a report published by independent think tank Open Europe

The figure compares to the combined lending power of the EFSF and the ESM, which will only reach €500bn in mid-2014.

“If Spanish regions continue to rely on the central government to finance them, this could add another €20bn to Spain’s funding needs – a relatively small amount equivalent to around 2% of Spanish GDP,” Open Europe warned.

The main concern of this scenario will be the damage to confidence caused by Madrid not being able to exert political control.

Of the 17 Spanish autonomous regions, Open Europe estimates that seven have unattainable deficit reduction targets this year, as they are expected to make cuts worth over 2.5% of their GDP.

“Some of the larger regions have significant amounts of debt to roll over this year. Catalonia, for instance, must refinance over €5.7bn in maturing debt before the end of the year,” the report said.

The combination of these pressures could force Spain into some form of sovereign bailout, beyond the current bank rescue plan.
According to the think tank, potential costs of a bailout include fully removing Spain from the financial markets for three years, which could total between €450bn and €650bn.

This would be politically very difficult as taxpayers in northern Europe would oppose it and Spain would resist a highly prescriptive EU-led austerity programme.

Meanwhile, the European Central Bank is likely to resist direct intervention or purchasing more bonds but may increase lending with another Long Term
Refinancing Operation (LTRO).

Spain could finally request a loan to cover its financing needs until the end of the year. Open Europe estimates that such a loan could total around €78bn, on top of the bank rescue package.

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