Spain: up to six regions could seek aid from the €18bn gov’t fund

Up to six of the 17 Spanish indebted autonomous regions could follow the steps of Valencia and request support from the central government of the country, which set up a €18bn fund to finance the regional deficit.

According to the Spanish media, six regions are expected to shortly follow the request for aid of Valencia, which on Friday confirmed it will ask for financial help from Madrid.

Murcia, which has a population of 1.4m, said in a statement that it is studying the possibility of using the funding mechanism, but a decision has not been made yet.
Catalonia, Castilla La Mancha, the Balearics, the Canary Islands and Andalucia are also likely to seek aid from the fund.

Speaking today after a congress hearing, Spain’s Minister of economy Luis de Guindos (pictured) said the country will not need a full-scale bailout, following the €100bn banking rescue granted to the country by eurozone members.

Meanwhile, Spain’s economy weakened further during the second quarter due to a sharp drop in domestic demand and intense volatility in financial markets, according to the monthly economic report published today by the Bank of Spain.

Preliminary estimates showed that Spain’s gross domestic product contracted 0.4% in the second quarter from the first quarter, and dropped 1% in annual terms. Spain’s GDP is expected to decrease by 1.5% this year.

Bad news coming from the economy saw Spanish government bond yields reaching fresh highs.

Today, the yield on the 10-year Spanish government bond yield was up to 7.51%, according to data by TradeWeb, while the euro is now trading at 1.2126 against the dollar.

“We maintained the neutral position in Italy and the underweight position in Spain. Arguments have remained the same. The fundamental problems in Spain, the limited access to capital markets and the lack of concrete support measures from policy makers in the short term make us cautious on these countries despite their attractive yields,” said Rikkert Scholten, portfolio manager at Robeco.

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