Spain struggles to meet regions' 36 billion-euro debts

Wed May 23, 2012 5:40pm EDT
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By Julien Toyer and Andrés González

MADRID (Reuters) - Top Spanish officials are at odds over how to help the country's highly indebted regions refinance 36 billion euros of debt this year, government sources told Reuters on Wednesday.

The figure, revealed in the budget plans from 17 autonomous communities, compares with previous public data of around 8 billion euros of bonds maturing in 2012.

The difference is due to bilateral loans from Spanish banks to the regions worth 28 billion euros that were not made public previously. It could unnerve further investors concerned by the capacity of Spain to curb its public finances and reform its banking sector.

Spain's weak banks and overspending regions are at the heart of the euro zone debt crisis. There are fears that expensive bail-outs of ailing lenders, like fourth largest lender Bankia, could force the country to seek international aid.

Many of the autonomous regions are virtually blocked from financing themselves on public debt markets due to the high rates they would have to pay. Some have seen the credit rating on their debt cut to junk status.

Spain's government last week admitted its 2011 public deficit was higher than it had previously reported after three regions adjusted accounts.

The government sources said the central administration now aimed to put forward a new mechanism to back regions' debt as soon as early June.

But, the sources said, Economy Minister Luis de Guindos and Treasury Minister Cristobal Montoro disagreed on the final form the new instrument should take.   Continued...

A man looks at information screens at the Madrid stock exchange May 23, 2012. REUTERS/Andrea Comas