Catalonia Nears Default, Threatens Spain’s Debt

The Central Government blinks.

When Catalonia’s regional government announced a road map to independence from Spain in November last year, Madrid’s response was to threaten to cut off the financial supply lines to the region. It was the equivalent of a declaration of economic war, riddled with risks, especially with an acutely cash-strapped Catalonia facing over €4.6 billion of bond redemptions in 2016.

Madrid’s strategy was economic madness, as we warned at the time: Catalonia’s economy accounts for 20% of Spain’s GDP. And international investors would freak out if roughly one-fifth of Spain’s economy suddenly plunged into a deep recession or became ungovernable. Investors might question the ability of the Spanish government to service its over €1 trillion in debt.

Now, that scenario might be in the process of coming true.

The words “bankrupt” and “default” are being used with disconcerting frequency in relation to Catalonia. The words are even making their way into the headlines of national newspapers, as fears grow that the region could be on the verge of descending into a Greece-like debt spiral. Accordingto Regional President Carles Puigdemont earlier in March, Catalonia already missed payments on at least two bank loans.

Fitch just warned that Catalonia has grave liquidity problems that will require “proactive management of the debt” and “close collaboration with the central state,” which is about as likely as bullfighting getting banned across Spain

Continue reading the article


One thought on “Catalonia Nears Default, Threatens Spain’s Debt

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s