Spanish government proposing limits on regional budgets

Spain’s central government will propose setting a limit on the budgets of the country’s powerful regional governments, Prime Minister Jose Luis Rodriguez Zapatero said yesterday.

The measure, which aims to “guarantee fiscal sustainability in the mid-term”, will be proposed next month and it will be similar to a limit on spending in place for the central government, Mr Zapatero told Parliament during an annual state of the nation debate.

Last week, Mr Zapatero’s Cabinet approved a 3.8 per cent reduction in central government spending for next year as it fights to retain the trust of markets rocked by Greece’s sovereign debt crisis. Spain’s regional government debt is a major concern for the markets which fear it could compromise the central government’s goal to cut the annual public deficit down to six per cent of Gross Domestic Product this year and to a eurozone limit of three per cent in 2013.

While the central government managed to cut the deficit from 11.1 per cent of GDP in 2009 to 9.24 per cent in 2010, the regions pushed up their deficit from 1.92 per cent to 2.83 per cent.

“The information from the first quarter which we have from some autonomous communities indicates the existence of uncertainties, which reminds us that meeting our (deficit) goal requires the strict application of the path set out of all public administrations,” Mr Zapatero said.

Moody Investors Service warned in a report this month that Spain’s government would find it “very difficult” to meet deficit-cutting targets because it could not curb wayward regions such as Catalonia.

Last week, the International Monetary Fund criticised a lack of transparency in the semi-autonomous regions’ deficit reporting and called for a strict application of Madrid’s deficit rules on wayward regional governments.