Financial Times

Last updated: January 30, 2013 3:02 pm

Catalonia requests €9bn from rescue fund

By Tobias Buck in Madrid

Catalonia has requested more than €9bn in aid from a regional fund set up by the Spanish government, in a fresh sign of the financial strain faced by the country’s most important regional economy.

The demand, made by the Catalan government late on Tuesday, comes at a time ofsharp political tension between Madrid and Barcelona. Amid rising clamour in Catalonia for an independent state, it is likely to provide fresh ammunition to both sides of the political divide.

Opponents of Catalan secession typically point to the recent financial problems as proof that the region is dependent on the rest of Spain and should remain part of the broader Spanish state. Supporters, meanwhile, argue that Catalonia would be in much better financial shape if it did not have to transfer a large chunk of its tax revenues to poorer Spanish regions.

Artur Mas, the Catalan leader, has vowed to hold a referendum next year to determine whether Catalans want an independent state. In the latest blow to Madrid, the Catalan parliament passed a “declaration of sovereignty” earlier this month, asserting that the “people of Catalonia have, for reasons of democratic legitimacy, the nature of a sovereign political and legal subject”.

The central government is strictly opposed to an independent Catalan state, and argues that a regional referendum is not allowed under the Spanish constitution.

The latest sign of financial pressure on Catalonia was followed by further bad news for the broader Spanish economy. According to the latest data from Spain’s national statistics office, the country’s gross domestic product fell by 0.7 per cent in the final quarter of 2012, the sharpest drop in a year. Most forecasts expect GDP to fall even more steeply this year than last.

The plea for an additional €9.1bn in aid comes after Catalonia received €5.4bn from the national government in 2012. Madrid has earmarked €23bn for its regional liquidity fund this year, which is supposed to help regional governments that are shut out of the debt market.

If approved, the Catalan request would swallow close to 40 per cent of the funds available this year. The province accounts for about 20 per cent of Spanish GDP, making it the most important economy just ahead of the Madrid region. Catalonia is, however, also among the most heavily indebted regions in Spain, and is widely believed to face further financial strain this year.

In a report published by Moody’s last month, the credit rating agency highlighted the “rapid deterioration in the region’s operating results in recent years, which has led to high budget deficits, growing debt levels and recent liquidity pressures”. It said it expected “cash pressures” to persist throughout 2013.

Both Moody’s and Standard & Poor’s rate Catalan bonds as a “speculative investment”, also known as junk.

● Madrid on Wednesday announced measures to make it easier for evicted homeowners to restructure mortgage debt, enabling courts to reduce the debts of mortgage holders who have been evicted from their homes and cut interest payments on defaulted debt.

Spanish mortgage law is one of the toughest in Europe, with mortgage holders remaining responsible for their debt even when they have handed their house back to the bank if the value of the property does not cancel out the debt.