The autonomous regions of Spain must find a new weapon to seduce investors: in 2012 the maturities of the autonomies are 35 billion. On Tuesday the Castilla-La Mancha region managed to place only 53 of the 200 million bonos offered and the Valencia region is on the verge of bankruptcy. The solution proposed by the Treasury are the hispanobonos: joint bonds issued by the same central body representing the individual communities, which are then distributed among the individual regions.
This measure would help communities in two ways. First of all would increase the demand for securities, increasing the volume of emissions, and secondly, it would allow interests to stabilize around those of the state (because they are issued directly by the Treasury) which now pays an average of 4% for all its bonds.
Precisely because of the difference between the interest that is now required of the municipalities and the lower cost that the hispanobonos would have, the Economy Minister, Luis de Guindos, underlined that the cost of funding for all regions would be reduced by around 1 billion. And what's more, not to be underestimated, the amount of public debt that Spain presents to Brussels would not be affected, because the hispanobonos would be accounted for separately.
It is a sort of Iberian Eurobond, with an issue guaranteed by the Treasury of Madrid but in the hands of the individual municipalities. In this way the government, which currently cannot directly guarantee the autonomous communities by law, it will be able to issue debt to help the regions most in difficulty. However, it remains the risk of disadvantaging the lawful regions and that they have fulfilled their obligations.
But a collective effort seems necessary. Even if the situation is less serious than that of the Portugal, where the risk of insolvency is more generalized, even in Spain some regions are at risk. Valencia, for example, will need 5 billion in 2012 in order not to fall into default, and at the moment it is practically denied access to the markets since it is considered junk.
But a Ministry of Finance spokesman clarified that "there is still nothing definitive" and that different alternatives are being examined on this issue.
In the meantime, this morning, Minister de Guindos declared that the Government is maintaining its commitment to respect thedeficit/GDP ratio target of 5,35% this year and 3% in 2013. He also added that any comparison with the situation in Greece is "absolute nonsense" and that the labor market reforms confirm Madrid's willingness to meet its commitments.
