Fresh carnage in Spain today, with the 2yr yield up a further 90bp at 6.66% and the 5yr yield jumping another 50bp to 7.4%. For a country mired in a deep recession, with property prices collapsing and banks significantly under-capitalised it is no surprise that the situation has come to this. Not helping is the greater clarity regarding the dire financial predicament of many of the regional governments. On Friday, Valencia announced that it would apply for assistance from the new FLA (Automatic Liquidity Fund) set up by the central government to attempt to support the financing needs of troubled regional governments. According to one of Spain’s major newspapers, another six of the 17 regional governments will soon be making the same application. The debt of the regionals totals roughly 1/8 of Spanish GDP. Moreover, some EUR 16bn of regional debt is maturing in the current half year. Meanwhile, Spain is in riot mode, with miners, civil servants and fire-fighters already massing in the streets and increasing disillusionment with the aloof management style being adopted by the Rajoy government.
Soon, the caterers in Brussels will be very busy again...
