June 1, 2012 / 9:43 AM / 5 years ago

Spain delays plans to back regions' debts

MADRID (Reuters) - Spain’s government has delayed by at least a week the adoption of a new mechanism to ease the funding problems of its heavily indebted regions, a government source said on Friday.

The 17 autonomous communities, virtually blocked from financing themselves on public debt markets due to the high rates they would have to pay, need to refinance about 36 billion euros of debt maturing this year and find 15 billion euros to fund their authorized deficit.

Overspending by the local governments, as well as troubled banks, have sent Spain’s borrowing costs to record highs and helped reignite the euro zone debt crisis as investors fear the country will be forced to seek international aid.

Officials had indicated previously that the cabinet could approve the plans on Friday.

“At the end, it won’t go (to the weekly cabinet meeting). It was studied yesterday but there are still a few details to sort out. It has been decided to take a few more days to look into these details,” the source told Reuters.

The risk premium investors demand to hold Spanish 10-year debt rather than German bonds rose to its highest since the launch of the euro - 546 basis points - on Friday.

The treasury ministry is due to release the deficit figures for the 17 autonomous communities for the first months of the year later. That data will be key to judging whether Spain is on track to meet its tough EU-agreed deficit target of 5.3 percent of gross domestic product this year from 8.9 percent in 2011.

Overspending in the regions were the main element explaining why the country missed last year’s targets by almost three percentage points.

After weeks of negotiations, the government gave its blessing in May to austere budget plans presented by all 17 regions, which account for around 50 percent of the country’s overall public spending and are responsible for their healthcare and education budgets.

Reporting by Blanca Rodriguez and Julien Toyer; editing by Patrick Graham

Our Standards:The Thomson Reuters Trust Principles.
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