Madeira, a scenic archipelago of 267,000 people, crashed into the Portuguese mainland on Friday, scattering shards of new sovereign liabilities…
…Experts estimated the damage reached at least 0.3 per cent of the country’s GDP. The above’s a joint statement by Portugal’s statistics office and the central bank, detailing “undiscovered” debts racked up through the Madeira regional government’s dealings with companies.
The debt dates back to 2004 and was renegotiated in 2008 and 2009 without the stats authorities being told, it seems. It’s got to the point where it has to be classed as being assumed by central government. A “serious omission” according to the statement. It’s in addition to a €500m hole found in the Madeira accounts in early September. Oops!
Interestingly though, it’s clear that there had been local complaints about the Madeira government amassing indirect debts for a while. Friday’s statement however comes only days after an IMF staff report into Portugal’s bailout warned that fiscal risks from companies tied to state projects had “started materialising” in Madeira.
Now, Madeira’s not a massive financial threat, we suppose (it has €1.5bn of guaranteed debts already according to the IMF staff report). After all it’s safe to say Portugal is already struggling to control the growth of debt to GDP anyway.
But there is a wider point. Remember that many arguments for Eurobonds as a solution to the crisis assume fiscal co-ordination will become more or less automatic between states and, crucially, within them. The obvious counter-point is that many eurozone nation-states are the products of delicate compromise between central and regional power-bases, sometimes going back over centuries of history.
Madeira’s mishap might be a good case in point…
(H/T to Paul Murphy for headline)
Related links:
Spanish regions’ debt surges to a record – Bloomberg
Don’t mess with Eurostat – FT Alphaville