Spanish Banks And Regional Governments Put Pressure On Central Government

This article describes the problems that have been brewing in Spain. Bankia, which is Spain's largest mortgage lender, told the government that it needed $23.88 billion to stay afloat.  This is much more than it believed that it needed a short time ago.  The Spanish treasury also told the banks that they needed to add euro 30 billion to the euro 50 billion to reserves to cover bad loans.  This raises concerns about a run on Spanish banks without support from the rest of Europe.

Problems are also escalating in Spain's regional governments.  Catalonia, which is Spain's largest regional government with 20% of the population, said that it is unable to pay its suppliers.  The city of Barcelona and Valencia, which are the second and third largest cities in Spain, are selling 6 month debt at a 7% interest rate.  They are asking the central government for help.

The central government has been trying to cut spending in order to meet fiscal goals that are required by the eurozone.  It is not clear that the central government can provide support to the banking system and the regional governments given its own financial needs.  The problems in Spain are a moving target.  As the recession worsens in Spain the needs of the banking system and the regional governments escalate.