In a new sign of a Spain's deepening financial crisis, the regional government of Valencia on Wednesday said it was a week late in repaying a €123 million ($160 million) debt to Deutsche Bank AG.
A spokeswoman for the Valencia government said the region had assistance from Spain's central government in Madrid in finding a solution to its liquidity crunch, but said Madrid didn't provide extra funds or a guarantee.
The spokeswoman said the central government was "sensitive" to Valencia's difficulties, but declined to elaborate. El Pais newspaper reported on Wednesday that Madrid had persuaded an unnamed bank to provide Valencia with a short-term loan so it could repay Deutsche Bank.
The stop-gap solution for Valencia comes just days after the Spanish government said Spain's total public-sector budget deficit likely came in at around 8% of gross domestic product in 2011, well above the country's 6% target. Spain is suffering from the collapse of a tax-rich housing boom and prolonged economic slump.
Last Friday, the government approved nearly €15 billion of spending cuts and tax increases it said will also benefit regional finances. Budget Minister Cristobal Montoro said Madrid was committed to supporting the regions.
In highly decentralized Spain, regional governments control around a third of spending. But, faced with gaping budget gaps and towering debt loads, they have faced mounting difficulties to finance themselves.
Valencia last month failed to raise the full amount of a new €1.8 billion bond issue, prompting ratings firm Moody's Investors Service Inc. to downgrade it to junk status, while Standard & Poor's downgraded it to the brink of junk.
Valencia, a Mediterranean region with hundreds of kilometers of beach-front property, is the center of the collapse of the country's housing industry. After years of high spending, its government is the most indebted of Spain's 17 regions, with a 20% ratio of debt to regional gross domestic product—twice as high as a decade ago.
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