Spanish local and municipal authorities have accumulated a total debt of 50 billion euros in unpaid bills. They just don’t have the money to pay. This already affects 3.2 million companies or 5% of GDP.
The central government isn’t immune to similar problems: it is renegotiating weapons contracts of around 26 billion euros it cannot pay as well.
The worst offenders are municipalities: their average payment to suppliers stands at an astonishing 238 days. The autonomous regions’ average is 155 days, while the central government’s figure is 140 days.
As reported by El Economista, This has an impact on everybody in the pipeline: companies contracted by local authorities, workers hired by these companies and virtually the whole Spanish economy at these levels. Some small town are considering to announce bankruptcy, and there are probably many more trying to avoid this.
These problems were bubbling for a long time: the loss in revenue from building contracts,and the inability to raise taxes or get the bills in order has been with us since the beginning of the financial crisis, when Spain’s construction sector collapsed.
They become more publicly discussed earlier in the year when the autonomous government of Catalunya missed its deficit target and was downgraded by rating agencies.
Towards the local elections on May 22nd and afterwards, this big hidden debt began to surface.
And now we get a staggering estimate: over 50 billion euros.
Trichet managed to stabilize the Spanish and Italian bond markets by buying bonds. All in all, EUR/USD stayed in range once again. These fresh bad news from Spain could weigh on the euro.
Further reading: German experts say that Greece needs a 50% haircut.Get the 5 most predictable currency pairs