“We don’t care how they do it, but we need to make payments at the end of the month. Your economy can’t recover if you can’t pay your bills,” said Catalan President Artur Mas.
The debt burden of Spain’s 17 highly devolved regions and toxic property debt held by the country’s banks are at the heart of the eurozone debt crisis because investors fear they could strain finances to the point that an international bailout is needed.
Just after the announcement this afternoon Spain’s IBEX stock market fell 1.1pc, the yield on ten-year Spanish debt rose to 6.24pc and the euro slumped to its lowest level against the US dollar in two years, $1.2496.
Catalonia, which represents one fifth of the Spanish economy, has more than €13bn in debt to refinance this year, as well as its deficit. All of the regions together have €36bn to refinance this year, as well as an authorised deficit of €15bn.
Last year many of the regions financed debt by falling months or even years behind in payments to providers such as street cleaners and hospital equipment suppliers.
Speaking exclusively to The Sunday Telegraph, Theodoros Pangalos said he was “very much afraid of what is going to happen” after Greek voters rejected the deal in elections last Sunday.
“The majority of the people voted for a very strange mental construction,” he said. “We want to be in the EU and the euro, but we don’t want to pay anything for the past.”
The main beneficiary of the election, the hard-Left Syriza coalition, came a startling second on a promise to tear up the deal, which promises EU loans to keep massively-indebted Greece afloat, but demands crippling spending cuts in return. Germany, the principal lender, has said it will stop payments if Greece breaks its promises on spending.
Mr Pangalos warned: “There is a school of thought that says the Germans are bluffing. They need Greece and will never throw us out of the eurozone. But what will happen, which is almost certain, is they will not give us the money to pay our debts.
“We will be in wild bankruptcy, out-of-control bankruptcy. The state will not be able to pay salaries and pensions. This is not recognised by the citizens. We have got until June before we run out of money.
The two mainstream parties that approved the second international £110 billion rescue loan and its stringent requirements for cuts were heavily punished as support surged for the Left and Right.
The shattering of the political status quo threw into doubt Greece’s commitment to meeting the terms of its debt and could spread instability throughout the euro zone.
Weeks of uncertainty are likely to follow as numerous parties vie to cobble a majority coalition, with a fresh election within two months a distinct possibility.
There will also be fears that ensuing political instability will see a return to the street violence that has scarred Athens since the debt crisis surfaced two years ago.
Exit polls said the conservative monolith New Democracy would finish first with a maximum of 20 per cent, while Pasok, the main socialist party, would suffer a dramatic fall to 13-14 percent, a third of what it received when winning the 2009 election. Voters held both responsible for years of mismanagement and corruption.
Just when you hoped it really was “solved”, the eurozone crisis has roared back on to the global agenda.
Like a lingering bad smell, the fundamental contradictions at the heart of monetary union can be blanked out for a while but refuse to go away. The busted banks, the grotesque indebtedness, the inherent contradictions – in recent days they’ve all burst back into view.
The eurozone has deeply entrenched economic, financial and political problems. No amount of tub-thumping – by Sarko, European Central Bank President, Mario Draghi, or anyone else – can change that fundamental truth.
The focus has been on Greece but now it is most definitely on Spain. Will Spanish debt woes spiral out of control and, if so, can they then be contained? That’s the €1 trillion question. But how much is that in pesetas?
Spain is the fourth-largest eurozone economy and the 12th biggest in the world. Spanish GDP last year was almost five times that of Greece. On the surface, Spain’s government finances don’t look bad, with national debt at 68pc of annual GDP – around half that of Italy.
Well there’s a surprise. A “strictly confidential” 10-page debt sustainability report commissioned for yesterday’s meeting of eurozone ministers concludes that the austerity measures being foisted on Greece as a quid pro quo for a second, €130bn bailout, are quite likely to prove self-defeating, in that the austerity, by further weakening the economy, may well cause the debt to GDP ratio to rise further.
Furthermore, the debt “haircut” being required of private investors may prevent Greece from ever returning to private markets for borrowing, making the country indefinitely reliant on official support. After the bailouts, so much of Greek’s debt will be held by official channels, all of who preferential treatment as creditors, that no private sector investor would go anywhere near it, knowing he’d be last in the creditor line
These points may have been obvious to everyone else for a long time now, but I guess final acknowledgement of these inconvenient truths must be seen as progress amid the grand delusion of eurozone policy-making.
After almost 14 hours of talks ending early on Tuesday morning, eurozone finance ministers unveiled an austerity and aid programme for Greece that aims to reduce its debt from 160 per cent to 120.5 per cent of GDP in 2020.
Lucas Papademos, the Greek Prime Minister, who attended the talks, hailed the latest debt crisis deal, following a previous agreement last October, as providing the solution for Greece.
“It’s no exaggeration to say that today is a historic day for the Greek economy,” he said.
George Osborne, the Chancellor, said this morning he hoped the agreement would boost the economy across Europe. He said:
“The rest of the eurozone has signalled a willingness to stand behind their currency and stand behind Greece, and frankly all along the failure to deal with the Greek situation has caused uncertainty.
Greek leaders thought they had fulfilled their side of the bargain, yesterday, hammering out 3bn euros in extra budget cuts to qualify for their next round of international loans.
But at the meeting of eurozone finance ministers on Thursday, frustration at Greek foot-dragging seems to have won the day.
Those same politicians have now been told they have three days to come up with a bit more budget pain. And they have to all promise (in blood?) that they will stick with the programme, no matter what the voters might say in April.
International bailouts – and the debt crises leading up to them – are always pretty painful to watch.
You wouldn’t look very dignified either, jumping through hoops for your bank manager, with your back firmly against the wall (mixed metaphor intended).