Spain’s Catalonia suspends grants for social services

The government of Catalonia, Spain’s most indebted region, said Tuesday it could not afford to make its grant payments to social institutions such as hospitals and homes for the elderly for July.

“It is due to a problem of liquidity,” said a spokeswoman for the Catalan regional government’s economy ministry, adding the situation “will start to return to normal in September.”

The government of the northeastern region said it could not say what the total amount of suspended grant payments would be.

“We are trying to regulate the payments of some items, so we can’t give a global figure,” the Catalan economy ministry spokeswoman said.

But daily newspaper El Pais reported Tuesday that 400 million euros ($490 million) is involved.

Around 100,000 employees could be deprived of their salaries for the month of July as a result, according to the Catalan Confederation of Social Services Associations, which groups around 800 associations.

It said it was “alarmed” by the measure, adding the health sector was hit badly by spending cuts imposed by the regional government last year.

Catalonia, which accounts for about one fourth of Spain’s total economic output, said last week it was studying the possibility of tapping a new central government fund set up to to help regional governments in difficulty.

Two other regions, Murcia and Valencia, have also indicated they will seek aid from the fund, worth up to 18 billion euros ($21.9 billion) and which was set up in the middle of July.

The debt burden of Spain’s 17 regional governments are at the heart of market fears that the national finances could become so strained that the country may need a full bailout, on top of a 100 billion euro ($123 billion) credit line agreed recently for its banking sector.

The Catalan government has cut public sector wages, introduced a one euro charge for each medical prescription and frozen infrastructure investments as it seeks to bring its public deficit under control.