Spain Offers Debt-Pressed Regions Cash, Loans in Next Weeks

(Updates with comments by minister starting in second paragraph, bond yield in fifth. For more on Europe’s debt crisis, see EXT4.)

Jan. 18 (Bloomberg) -- Spain’s central government will provide a credit line and other liquidity measures to ease pressure on cash-strapped regions while demanding tighter deficits in return, Budget Minister Cristobal Montoro said.

The central government in the coming weeks will pay the regions an 8 billion-euro ($10 billion) transfer that had initially been scheduled for July, Montoro told radio station Cadena Ser in an interview today. It will also offer loans via the Official Credit Institute to help regions settle bills for suppliers in a couple of months, he said.

“We are submitting these mechanisms on the condition that the regions present fiscally viable plans,” said Montoro. He first announced the measures yesterday after meeting with regional finance chiefs following a pledge by Prime Minister Mariano Rajoy to “rescue” regions with liquidity problems.

The 17 semi-autonomous regions control more than a third of Spain’s public spending, including health and education, and caused the nation to miss its budget-deficit target last year. The liquidity measures are designed not to affect the deficit, skirting a law forbidding direct bailouts.

Yields Stable

The yield on Spain’s benchmark 10-year bond was 5.13 percent at 11:25 a.m. Madrid time, unchanged from yesterday. The yield difference with equivalent-maturity German bunds was 332 basis points.

Spain is copying European fiscal rules to “introduce discipline” because “a manager of public funds can’t spend more than his budget,” Montoro told Cadena Ser. “If a state wants to spend more it should raise taxes for citizens and they will decide in the following elections if it is right.

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Spain Offers Debt-Pressed Regions Cash, Loans in Next Weeks
Spain Offers Debt-Pressed Regions Cash, Loans in Next Weeks

It will also offer loans via the Official Credit Institute to help regions settle bills for suppliers in a couple of months, he said. “We are submitting these mechanisms on the condition that the regions present fiscally viable plans,” said Montoro.



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