The markets don't have much confidence in Spain's regional governments, which is one of the main factors driving the country's risk premium to historic highs and sending the Ibex to lows not seen since 2003.
So the government keeps putting pressure on the regions to cut government spending as much as possible and to meet their annual deficit objective for 2013 (1.5%). A hard task, but not impossible. While we wait to see if other regional governments will follow in the footsteps of Valencia, Murcia and Catalonia and ask the Regional Government Liquidity Fund (FLA following the Spanish acronym) for financing aid, the Ministry of Finance explained that it won't force additional cutbacks on those who have already asked for help.
Instead of asking for more cutbacks, the Ministry of Finance will exert extreme control over regional government accounts in order to ensure that they follow, to the letter, the stability agreements that were agreed on in the middle of the Fiscal and Financial Policy Council that was held in May. It remains to be seen whether the 18 billion euros that the FLA provided will be enough to cover future capital requirements.
Original estimations, which are not yet official, indicate that the three governments who asked for bailout funding will get around 7 billion euros collectively. So only 11 billion euros remain for the others. The Ministry of Finance believes that it can easily cover the regions' liquidity needs from now until year end. The Ministry's strict oversight should help streamline the regions, improve Spain's image globally and calm the insatiable markets.
