Spain's risk premium shot to a new record high on Friday after officials in Valencia formally asked the central government for funds to help pay the region's surmounting bills, including the high prices of prescription drugs.

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Following Friday's weekly Cabinet meeting, Finance Minister Cristóbal Montoro announced that the government was cutting its economic growth forecasts for 2012 and 2013 based on the rise in interest rates Spain will have to pay for its debt, hikes in Social Security costs and increases in pensions. The minister said that public spending could rise by as much as 9.2 percent in 2013.

Montoro said at first that he wasn't aware that Valencia government officials had announced about an hour earlier that they would be the first region to formally tap into the Regional Liquidity Fund (FLA), a system that was created just over a week ago which will allow cash-strapped regions to access financing but under stringent guidelines.