Palma.—The Balearic government has spent the past few months trying to avoid a bail out and convince the general public that the region was on track to clear its deficit but yesterday, it bit the bullet and asked central government for a financial rescue package in the sum of 355 million euros.

In short, the Balearics has ten years, with an extra two years grace, to pay back the loan with a six percent rate of interest but can not approach any bank or financial institution for further funding should the situation worsen. What is more, the money from the central government's regional aid fund, can only be used to clear outstanding bills.

The cash aid cannot be used for any new infrastructure projects or other such ventures. It quite simply can only be used to go towards clearing the region's deficit.

Some 189 million euros will have to be to repay maturing debt, and the remaining 166 million euros will refinance the region's deficit, the local government said.

The announcement was made by the vice-president and Balearic Finance Minister, Josep Ignasi Aguilo yesterday who admitted that the government had been studying private avenues of raising the funds but decided on opting for the more secure aid from the so-called Autonomous Liquidity Fund which has already been hit by seven other autonomous regions.

Its request means that just under 17 billion euros of the central government's 18 billion euro regional liquidity fund has already been tapped, leaving it with little firepower left to shore up regional finances.

The regional governments have been forced to apply to Madrid for financial aid as growing investor concern over the state of Spain's finances and rising national debt has virtually shut them out of bond markets.

Spain's banks will finance 8 billion euros of the government fund, while 6 billion euros will come from lottery funds and the remaining 4 billion euros will come directly from state coffers. Top banks Santander, BBVA and Caixabank will contribute the main part of the banks' component of the fund, sources revealed back in September.

Overdue bills are now piling up at regional governments and town halls, only months after Madrid staged a rescue that was meant to end the shame of unpaid workers and suppliers.

Financial crisis in the layers of administration below national level is hurting everyone from Spain's biggest corporations to local staff who would be among the lowest-paid workers - but for the fact they often aren't being paid at all.

Now 70 percent of municipal income is being used to pay off the debts, leaving little to run services or pay staff.