Spanish regions reveal financial woes

Serious financial woes in Spain's regions are coming to light daily and providing their new conservative leaders with a powerful weapon ahead of November 20 general elections. After a crushing victory in May local elections, the right-wing opposition Popular Party swept aside Socialists in regional governments across the country. Now in control of 13 of the 17 regional governments and riding high in the polls, the Popular Party has been calling attention to the huge deficits left by their Socialist predecessors. On Wednesday, the central Spanish region of Castile-La Mancha, home of the fictional hero Don Quixote, announced "exceptional" spending cuts to reduce a deficit equal to 4.9 percent of its gross domestic product at June 30. The same day, Extremadura in the east, said its public deficit would hit 6.81 percent of GDP by the end of the year. Catalonia, the northeastern dynamo with Barcelona as its capital, has outlined a deficit of 2.66 percent in its 2011 budget. All of these figures far overshoot the Socialist central government's deficit target for all the regions of 1.3 percent of national GDP. Analysts say the slippages complicate the central government's efforts to reduce the overall deficit from 9.24 percent of GDP last year to 3.0 percent -- the European Union-agreed ceiling -- by 2013. Moody's Investors Service cited the regions' deficits when it threatened in July to downgrade Spain's sovereign credit rating. It downgraded the rating of six regions -- Catalonia, Castile-La Mancha, Murcia, Valencia, Andalusia and Castile and Leon -- at the same time, noting "the deterioration in their fiscal and debt positions." In the first quarter of this year, only half of the 17 regions presented budget deficits that met the target set by Madrid, according to the finance ministry, which will soon publish the half-year figures. Since the May local elections, however, the problem has taken on a political hue -- the debt left by former Socialist administrations has become a club to wield ahead of the general election. The president of Castile-La Mancha, Maria Dolores de Cospedal, who is also secretary general of the Popular Party, bemoaned in a news conference Wednesday the "economic ruin inherited from the previous government." In Extremadura, economic chief Antonio Fernandez of the Popular Party criticised the "short-sightedness" of the former team, which "focused on the present and forgot about what could happen and the future of the inhabitants." With a debt of 31.9 billion euros ($46 billion) at the end of 2010, Catalonia is now run by the nationalists. Disregarding the central government's plan to enshrine a balanced budget rule in the national constitution, Catalonia has announced plans to approve its own "golden rule" in the regional constitution. Spendthrift regions, which splashed out in the years of a profitable property boom, have become an easy target for both right and left. The Socialist president of the lower house of parliament, Jose Bono, Monday termed the duplication of public spending in the regions as "absurd." Some of the cuts announced in Castile-La Mancha give an idea of level of spending -- the region has 2,500 official vehicles, many of which are now to be sold off, and its own representative office in Brussels, which will be closed. Another 19 regional government companies and foundations will be eliminated. The overall accumulated debt in the regions -- 121 billion euros -- is also a concern. Deepest in debt are Valencia, with a debt equal to 17.4 percent of GDP, and Catalonia at 17.2 percent. As of June 30, Castile-La Mancha's debt amounted to 7.5 billion euros and it had 2.6 billion euros in unpaid bills. In its coffers, the region disposed of just 36 million euros in cash.