Is Valencia Spain’s Own Little Greece?

Photographer: Angel Navarrete/Bloomberg

Spain’s regional governments have much to answer for in the country’s financial crisis. Not only were regional authorities largely responsible for political interference in the local savings banks, the Cajas, which contributed to their demise, but they also ran up their own unsustainable debts. The renewal of this debt, which in 2012 is weighted to the second and fourth quarters, will hang over them for a generation. El Pais has a good chart that lays out the numbers.

When Spanish regional debt is taken as a proportion of regional GDP, it is more obvious why Valencia, for example, was paying more than Greece to refinance its debt earlier this month, when it offered 7 percent interest on six-month debt. Valencia’s debt as a proportion of GDP amounts to almost 20 percent. Catalonia tops the chart with debt at just over 20 percent of GDP. These regions are followed by Castilla-La Mancha (18 percent of GDP) and the Balearic Islands (16 percent of GDP).

No wonder there is growing pressure for the emission of “hispabonos,” debt guaranteed by the state that would be used to finance the regions. This would be Spain’s own version of the euro-bonds solution Madrid is demanding for the whole euro zone. Valencia’s Tax and Administration Minister Jose Manuel Vela hopes the new hispabonos will be created “before the summer,” El Mundo reports. The bills coming due are unlikely to be paid any other way.

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