(Updates with start of Cabinet meeting in third paragraph, delay of tax and social-security payments in fourth, bond yields in eighth. For more on the euro crisis, see EXT4.)
Dec. 23 (Bloomberg) -- Catalonia will coax its citizens to buy bonds and seek help from the new government in Madrid to meet its funding needs in 2012 as the spread of the sovereign debt crisis keeps Spain’s largest region shut out of markets.
“The situation on the markets is very difficult now,” Artur Mas, president of the wealthiest of Spain’s 17 semi- autonomous regions, said in an interview in Barcelona yesterday. “The central government has to financially help the regions in order to stabilize the situation in Spain.”
Prime Minister Mariano Rajoy, who is holding his first Cabinet meeting today after an election victory on Nov. 20, has pledged to tackle the euro area’s third-largest budget deficit to regain Spain’s AAA rating. The regions’ efforts are key to convincing investors the nation can tame borrowing costs and avoid contagion from the debt crisis because they control more than a third of public spending, including health and education.
Battling with a cash squeeze, the administration in Barcelona has negotiated with the central government to postpone to Jan. 20 the payment of income tax due in November and December, a spokeswoman who declined to be named in line with regional policy said today. It’s in talks about a similar delay for the payment of social-security contributions, she said.
Catalonia will seek to tap citizens in 2012 for half to three-quarters of its estimated 10 billion euros ($13 billion) in financing needs, the same level as this year, Mas said.
‘Difficult for Us’
“We are trying to focus on the domestic market instead of going to the wholesale market, which is at the present time more difficult for us,” he said.
“If the central government doesn’t help the regions, the whole Spanish state will collapse,” said Mas, adding that it can assist by granting loans and sharing debt issuances across regions. “It is not logical that being an essential part of the Spanish state, we are paying one or two more percentage points more than the central government for our debt.”
The yield on Spain’s 10-year benchmark bond rose to 5.368 percent today from 5.363 percent yesterday, widening the spread with the yield on similar German maturities to 343 basis points.
Catalonia will cut the wages of 200,000 public-sector workers by 5 percent next year as part of a plan to half its deficit to 1.3 percent of gross domestic product from 2.66 percent this year, Mas said.
“Instead of only reducing public services, we will reduce wages, sell public companies and introduce new taxes,” he said.
Catalonia, which accounts for more than a quarter of Spain’s exports, will support Rajoy’s efforts to implement structural changes to the nation’s economy, Mas said.
It’s “possible” that Catalonia’s creditworthiness will be cut this month, he said. Fitch Ratings, which downgraded the region on Sept. 14, put its rating on negative watch yesterday.
--Editors: Jeffrey Donovan, Eddie Buckle
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