Spain’s 17 semi-autonomous regions
will have to comply with debt ceilings starting this year as
Prime Minister Mariano Rajoy seeks to convince investors the
nation can avoid a second bailout amid surging borrowing costs.
“We are all going to comply with deficit targets,” Budget
Minister Cristobal Montoro said late yesterday during a news
conference following a meeting with regional finance chiefs in
Madrid. Several regional representatives told reporters the new
rules will force them to deepen budget cuts.
Rajoy is trying to avoid a broader bailout after securing
100 billion euros ($123 billion) in European loans for Spain’s
banks. The yield on its 10-year debt rose to a euro-era high of
7.75 percent on July 25 even as Rajoy announced his fourth
austerity package since Dec. 30.
It then fell after European Central Bank President Mario Draghi said last week he would do whatever is needed to protect
the single currency, regaining 14 basis points yesterday to
close at 6.75 percent.
Montoro said all but four regions voted in favor of the
debt limits, which average 15.1 percent of gross domestic
product this year and 16 percent next year. The regions together
had a debt-to-GDP ratio of 13.1 percent and a deficit of 3.3
percent in 2011.
Catalan Boycott
Catalonia, the biggest contributor to Spain’s economy and
its most indebted region, will have to keep its debt burden
within a limit of 22.81 percent of GDP this year and 23.6 in
2013, said Antonio Beteta, deputy minister for public
administration. That compares with 21 percent in the first
quarter.
The region, ruled by a Catalan nationalist party, boycotted
the meeting over Montoro’s refusal to relax the regions’ budget
deficit targets this year. Asturias and the Canary Islands, also
ruled by regional parties, turned up but voted against Montoro’s
goals.
Beteta said the figures were calculated for each region
using their 2011 debt load and adding a deficit of 1.5 percent
of GDP for 2012 and 0.7 percent for next year.
Andalusia, the third contributor to GDP and the only region
still in the hands of Spain’s Socialists, left the meeting early
saying that the rules will force it to generate a surplus of 2
percent of its GDP next year. The rules would impose
“indiscriminate and illogical cuts in services such as health
care and education,” finance chief Carmen Martinez Aguayo said
on her way out.
More Cuts
All of the regions ruled by Rajoy’s People’s Party,
summoned to Madrid yesterday by the premier to hold talks ahead
of the meeting, voted in favor. “The deficit and debt targets
were shared out evenly,” Castilla y Leon finance chief Pilar
del Olmo told reporters. She said the region will announce new
budget cuts shortly to implement the rules.
The regions, which handle more than a third of public
spending, were mainly responsible for Spain’s budget slippage
last year. The country’s budget gap, the euro area’s third
largest, remained almost unchanged from 2010 at 8.9 percent of
gross domestic product last year.
Rajoy’s seven month-old government has bailed the regions
out several times this year to prevent any default, transferring
funds to them and organizing as much as 41 billion euros in bank
loans to allow them to pay suppliers and redeem bonds.
The liquidity support burdened state finances, and data
showed yesterday that the central government’s deficit surged to
4.04 percent of GDP, exceeding its full-year target. The nation,
including all levels of government, has to comply with a 6.3
percent limit.
To contact the reporter on this story:
Angeline Benoit in Madrid at
abenoit4@bloomberg.net
To contact the editor responsible for this story:
Craig Stirling at
cstirling1@bloomberg.net
Enlarge image
Budget Minister Cristobal Montoro
Budget Minister Cristobal Montoro said late yesterday, “We are all going to comply with deficit targets.”
Budget Minister Cristobal Montoro said late yesterday, “We are all going to comply with deficit targets.” Photographer: Denis Doyle/Bloomberg
Aug. 1 (Bloomberg) -- Ebrahim Rahbari, an economist at Citigroup Global Markets Ltd., talks about European Central Bank policy and the region's economies.
Rahbari speaks with Tom Keene and Scarlet Fu on Bloomberg Television's "Surveillance." (Source: Bloomberg)
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Spain Introduces Regional Debt Ceilings to Achieve Budget Goals
The regional flag of Catalonia, right, hangs beside a Spanish national flag, left, in the assembly hall at the Catalan parliament in Barcelona.
The regional flag of Catalonia, right, hangs beside a Spanish national flag, left, in the assembly hall at the Catalan parliament in Barcelona. Photographer: Lourdes Segade/Bloomberg