Valencia Region on brink of bankruptcy?

The Valencia Region is in financial trouble it seems. The autonomous region has debts in the region of €1.3 billion relating only to unpaid healthcare bills from the last two fiscal years, 2009 and 2010, Spanish daily El Pais reported. It is further alleged that the region will have a further “black hole” in its funding of €1.3 billion for the current year.

This predicted figure needs to be seen next to the region’s overall healthcare budget of €5.5 billion, showing a projected overspend of some 25 per cent. Healthcare comprises 40 per cent of the Communidad Valenciana’s budget, and so an overspend of 25 per cent on health, equates to a 10 per cent overspend in total.

Last march, small healthcare suppliers who had not been paid by the Valencia regional government for some time, where so desperate to highlight their plight that they formed a group to represent their cause, and try to recoup some of their outstanding invoices from Valencia.

The worrying figure is that last year, the debt of the Valencia Region stood at some €17.6 billion, which equates to around 17% of the region’s Gross Domestic Product. Simply to meet interest payments on this debt requires €680 million per quarter, according to El Pais, or a whacking €2.7 billion per year.

With companies and individuals the usual judge of when they are insolvent or bankrupt is when they are unable to fund their debts, i.e. pay ongoing bills and meet interest payments on borrowings. The same rule applies to governments. Without addressing the progressively worsening problem, there will come point where Valencia will be a bankrupt institution. The question then will be, who will bail them out, and on what terms?

The crisis that has beset certain European countries comes when they are unable to finance the repayment of loans on the debts they built up through years of mismanagement and overspending. The same principal applies to a regional government as we have in Valencia, which is the most indebted region in the whole of Spain, El Pais says.

Recently EWN reported on the problems with the recently constructed airport at Castellon, and its unpaid debts where reportedly €17 million is owed to the company who won the concession to build the airport, €4 million overspend on the airport and €11 million in penalties for late payment. The latest alleged scandal is that there is no money to pay for the completion of 30 new schools where works have already began.

As with the small healthcare providers who have not been paid their bills e.g. local chemist’s shops not being given their prescription payments.  Eventually the region’s financial crisis will hit individuals and businesses alike. 

It is unusual that the crisis has come about under the governance of the PP which traditionally is seen as the more prudent and less profligate of Spain’s two major political parties; the PP at a national level always attacking the incumbent PSOE on its economic failings. No plan has yet been mooted on how to address the structural problems within the Communidad Valenciana that will tackle this economic time bomb, but if something is not done soon there could be much worse to come.

One glimmer of hope might have been that now the PP have got back into power in Valencia Region following the elections, they might have felt they have sufficient time to try and put their house in order before they next had to face the public.

Some fear the most likely outcome though, is that having secured a victory they will see no need to change their ways and simply let things drift until the next elections. They have returned to power without promising to tackle, or even acknowledging,  the debt, and will very likely continue in the same old vein.

Photo credit: Shutterstock

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