Catalonia seeks 5bn-euro bailout from Spain

Mariano Rajoy has said he would consider asking for help from the ECB Mariano Rajoy has said he would consider asking for help from the ECB

The debt-ridden Spanish region of Catalonia has asked for a bailout of 5bn euros ($6.3bn; £4bn) from the central government.

This summer, a 18bn-euro public fund was set up by Madrid to aid its 17 autonomous regions, which are in deep debt.

Catalonia represents one-fifth of the Spanish economy.

It comes as official figures showed that Spain's economy contracted further in the second quarter.

The economy shrunk by 0.4% between April and June after a 0.3% drop in the previous three months, the Instituto Nacional de Estadistica said.

The nation's struggling economy has now declined for three straight quarters. On an annual basis, Spain's economy contracted by 1.3% in the second quarter.

Speculation has persisted that the country will have to request a full financial rescue.

In June, Spain requested 100bn euros ($122bn; £79bn) of loans from the eurozone's bailout fund to help support its banks, which are struggling with bad debts from loans made in the property sector.

Borrowing costs

Despite this, the official figures show that Spain grew during 2011 as a whole despite earlier statements that it had shrunk for the year. But the economy contracted in 2010 more than had been stated.

The European Central Bank has said it will come up with ways to help eurozone countries, leading to raised hopes that it will buy Spanish debt to push down the cost of borrowing.

Prime Minister Mariano Rajoy has said he will do "what was best for the Spanish people" and is considering all options regarding a bailout, which has helped calm markets.

On Tuesday, the interest that Spain pays to borrow for three months fell to 0.946%, from 2.434% at a similar auction in July. Six-month debt dropped to 2.026%, from 3.691%, at the sale.

But the rate of interest Spain pays on longer-term borrowing has remained high because of investor concerns, making it difficult for the nation to service its debts.

Troika in Lisbon

Last month, Madrid announced additional spending cuts and tax rises worth 65bn euros.

Meanwhile, the so-called troika - the International Monetary Fund, the ECB and the European Commission - are in Lisbon to monitor the progress that Portugal is making on its commitments under its bailout.

Last week, official figures indicated that the government would probably miss its target of deficit target unless it found ways to tighten the budget further.

This comes after the troika visited Greece last week.

Greece's continued access to the bailout packages depends on a favourable report from the troika.

Athens is trying to finalise a package of 11.5bn euros of spending cuts over the next two years to qualify for the next 33.5bn-euro instalment of its second 130bn-euro bailout.

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