Spain to activate regional rescue fund this week

Spain will this week activate an 18-billion-euro ($23-billion) liquidity fund to help its stricken regions finance their debts, the government said on Tuesday. A handful of Spain's 17 regions have already asked for about 10 billion euros from the fund as they struggle to make spiralling interest payments on their debts. Deputy Prime Minister Soraya Saenz de Santamaria said the fund would start operations "this week". "The Budget Ministry is preparing the whole procedure so that on one hand it can dispose of the funds to give them and on the other set up the mechanism to make those interest payments," she told Cadena Ser radio. The new fund also would ensure that suppliers to the regional governemnts were paid, she said. The 18 billion euros would be sufficient "according to our calculations," the deputy premier added. To finance the fund, the Treasury raised three billion euros through a bond issue that was "almost entirely subscribed" to by Spanish banks and it plans a five-billion-euro private sale of debt securities in mid-October. The rest of the financing will come from a six-billion-euro contribution by the national lottery and a direct injection of four billion euros by the Treasury. Many of Spain's regions, responsible for half of all state expenditure, are smarting under central government deficit-cutting demands, which are forcing them into health and education cuts. A political rift has opened between Madrid and the powerful northeastern region of Catalonia, which has been rebuffed in its demands for the right to levy and spend its own taxes. Last month, Catalonia was forced to reach out for 5.0 billion euros from the liquidity fund so as to make repayments on its 40-billion-euro debt, equal to a fifth of its total output. The regional governments have promised to cut the deficit -- the gap between income and spending -- to 1.5 percent of total economic output by the end of this year. They posted an average deficit of 0.77 percent of output in the first half of the year. Investors have been banking on Spain seeking a full-blown bailout soon, pressured by high borrowing costs and looming debt repayments including about 30 billion euros ($38 billion) in October. Spain is battling to narrow the public deficit from a blowout figure of 8.9 percent of output last year to 6.3 percent in 2012, 4.5 percent in 2013 and 2.8 percent in 2014.