Murcia requests government bailout

Following on from the request by the the Valencia region for financial aid, the Regional Government of Murcia has also requested financial help from central government of up to €300 million Euros.

The details are sketchy at this point, however the Prime Minister of Murcia, Ramón Luis Valcárcel has said "The terms are not finalised" and "there will be strict conditions attached" in a newspaper interview for La Opinion. Under the terms of the regional bailout fund, strict conditions are imposed on regions requesting bailout cash and many regional powers are passed to central government. Not before time. Experts have long said that autonomy does not work. There is little control, regulation or scrutiny of public spending. 

Valencia, proved how regional governments have a tendency to do as they please, spend how they want and refuse to take criticism from anyone who questions their decisions.   Compared to other regions of Spain , Murcia is one of the least indebted and there are viable projects in progress including the much anticipated Paramount Theme Park.

News of the request comes as a tremendous coincidence after news broke yesterday of the Murcia Region being liable for up to €200 million Euros as bank loan guarantors to the consortium constructing Corvera Airport. The airport consortium of Corvera Airport, Aeromur led by developers Sacyr Terrazos Pillar, have hit a massive financial hurdle to the tune of €200 million euros and this threatens the possibility of the airport not actually opening..

In order to finance the project, the consortium sought finance from several banking institutions who demanded guarantees for the loans from the regional government of Murcia. Under the current terms, the 2 year guarantee from Murcia means Aeromur need only pay the interest on loans, with a further extension of 1 year after being operational before loan repayments begin. However, with the airport missing several opening targets and pressures on banking finances, Aeromur are now being forced to repay its loans or seek a new guarantee from Murcia.

Should Aeromur fail to negotiate a new guarantee from Murcia, it is likely the consortium will be unable to repay its loans and immediately pass ownership of the airport to the Region of Murcia government and making them liable for the €200 million loans.

Given the financial difficulties all regions are experiencing in Spain, the Region of Murcia Government would also find it difficult to repay loans resulting in a default or forcing the region to seek a bailout from central government and joining Valencia in the bailout club. A situation which wouldn't sit well with taxpayers.

Euro Analysis

The euro slumped to its lowest level against the yen in almost 12 years on today as Spain's debt crisis deepened, raising concerns over the wider eurozone.

With borrowing costs hitting the danger levels that forced Ireland, Greece and Portugal to seek a bailout, investors are concerned that Spain, one of the eurozone's biggest economies, will also have to call for help. 

Market players were spooked by reports that one of Spain's indebted regions, Valencia, would ask the central government for financial support, while officials in Madrid warned that the economy would likely contract through 2013. Europe is definitely a drag on risk assets again this week as investors are worried that 

Spain's debt burden could be bigger than expected and that a full bailout may be required. The worries sent Spanish borrowing costs to a euro-era record level, with the 10-year bond yield climbing to 7.24 percent, while the euro at one point fell to 94.61 against the yen, its lowest level since November 2000. Overnight in the Asian trading session, the euro, which also tumbled Friday amid the Spanish woes, bought 94.70 yen, compared with 95.38 late Friday in New York.

It's not the kind of situation where fears are just going to fade away, since the required amount of aid that Spain will need is likely to mount given the increasing needs of local governments. European leaders on Friday agreed to grant Spain's banks bailout cash of up to 100 billion euros but despite this there are fears that the country will need extra cash to help service its debts. The soaring yields on 10-year bonds come as unemployment sits at 24 percent and the government tries to implement further austerity measures.

Without better economic news the country could lose access to debt markets, leading it to a bailout, which some analysts have said could cost up to $500 billion. The euro was also down at two-year lows of $1.2114, from $1.2152 on Friday.