Edward Hugh on Catalonia’s debt (or financing) crisis

An excerpt from the article “Debate over Catalan secession hots up” by Julius Purcell in the Financial Times

 

While the region’s junk-bond rating and appeal for a €5bn credit line from Madrid dominated press coverage until recently, Catalonia’s debt crisis has been eclipsed by Mr Mas’ referendum plan.

 And Edward Hugh’s reply in his Facebook’s wall:

 

The thing is, Catalonia doesn’t have a debt crisis, it has a financing one. It needs more of its own money. Catalonia has total debt of between 40 billion Euros and 50 billion Euros (depending on whether you add in the state owned enterprises). That is about 25% of Catalan GDP, well below European averages. The region has junk bond status because of its debt to revenue percentages, but this would all change rapidly were Catalonia to raise its own taxes.

 

Naturally, were the forthcoming vote to result in strong majority backing for independence then the new Catalan state would surely be willing to accept a percentage of Spanish legacy debt, but the condition for that would be recognition by Spain, and at the moment all Spanish political leaders exclude that possibility. I presume they know how they are going to pay the debt, since then it will be Spain’s debt to revenue numbers that don’t add up.