The US Was Not The Only Country To Do A Last-Minute Budget Deal For 2012; Spain Added An Extra €3 Billion To Its Debt, Pushing The Country Further Down The Path Toward An Eventual Bailout

Wednesday, January 09, 2013 07:44
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The US Was Not The Only Country To Do A Last-Minute Budget Deal For 2012; Spain Added An Extra €3 Billion To Its Debt, Pushing The Country Further Down The Path Toward An Eventual Bailout

Tags: European debt | European zone | world economy

Not only has Spain’s sovereign debt spiraled the country’s economy downward, its prime minister also managed to slip in an extra €3 billion to the country’s debt by lifting the cap on government-guaranteed losses for utilities during the very last hours of 2012.

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The unlimited guarantee means the costs will be passed on to taxpayers.
 
This undermines Spain’s commitment to the European Union (EU) to reduce its budget deficit.
Spain’s electric utility system is government controlled and, for about a decade now, it has failed to raise enough from consumers to cover its payments to power companies.
 
The government has covered the gap with what is called the FADE program, the Electricity Deficit Amortization Fund.
 
The new decree allows the government to sell bonds under the FADE program. Otherwise, electric utilities would have to finance the gap.
 
The move effectively jettisons the obligation to make up the deficit from the government’s balance sheet onto the backs of consumers.
 
The government needs to borrow as much as €230 billion this year to finance the deficit and pay off maturing FADE bonds.
 
The bonds began to be issued again in October as the European Central Bank’s (ECB) bond-buying program increased demand for government debt.
 
The ECB’s move enabled Spain to push its obligations down the road, a road many believe will lead to the bank bailout Spain has been trying to avoid.

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