A report from the ratings agency Moody's estimates that Spanish regional governments will not be able to get financing on open markets for at least three years. This time horizon could stretch even longer if they can't square their accounts. The regions will struggle to do this if they don't enact deep reforms.
From now until 2017, they need at least 87 billion euros in order to pay down and service debts. Plus, starting next September they will have to start paying back the national government for the money they borrowed during the Service Provider Payment Plan, and in March 2015 they will start to return funds borrowed from the Region Liquidity Fund (known by the Spanish acronym FLA). The Finance Ministry set up the latter fund to help the regions, because they could not get money from regular capital markets. Nobody trusts these governments. If they had been companies, they would be bankrupt. A report from Moody's calls attention to the situation, and the regions and national government are paying attention. Spain might have to set aside even more money to help the regions get through, especially if they continue to come up short.
Thus, a paradox. Even though financing costs are lower, our debt level will continue to grow. This situation is sustainable at current interest rates, but not so once they start to rise. For their part, the regions have made some cutbacks but no major reforms. As a result their deficits are still high and their debts are still piling up. The stimulus from Finance is a mere match.
