Expensive and contradictory to the government's end goal of cutting spending and fixing the debt crisis. These traits will define the future of the ICO's line of credit, which Minister of the Economy Elena Salgado offered to regional governments on Wednesday.
She encouraged them to liquidate their debts to the federal government. A recurring policy to state loans that have risen in volume from the loans under management to some 58.5 billion euros, which is nearly 6% of Spain?s GDP.
Not counting the Plan de Infraestructuras, this price means a 5X increase in the price of loans undertaken by the ICO in 2007, a banner year for this kind of loan. The ICO will have to face technical and personnel constraints similar to those it faced five years ago. And the ICO's plan is expensive, because in order to get the money they need to make their lines of credit work, they must turn to the capital markets and reach payment agreements with the markets at less than optimal interest rates.
Yesterday the risk premium rose to 340 basis points and the yield of Spanish 10-year notes settled around 6%, nearly two points above 4.3%, where it was at the end of October when the Minister of the Economy forced the ICO to triple interest on loans to companies.
