The Spanish autonomous regions of Aragon and Cantabria have announced that they are unable to meet the deficit target of 1.3% of local GDP this year. They join Catalunya, Castilia La Mancha and the Balearic Islands, which will need government assistance to cover the gap.
The autonomous regions have long been the center of the Spanish debt problem. The central government is relatively balanced, but in Spain’s decentralized system, the autonomous regions have significant power and a significant ability to create deficits as well.
Spain’s El Economista reports that the local government in Aragon will probably hit a deficit of 2.6%, double the requirements, due to a drop in revenue. Catalunya’s deficit in the first 6 months of the year has already reached 1.28%, so that the 1.3% will be easily crossed by the end of the year.
The Spanish government wants to change the constitution in order to limit debt. This will probably pass with the opposition’s support, ahead of the elections due on November 20th.
The ECB managed to stabilize the Spanish bond yields with its mass interventions. The yields stand at around 5% since Trichet stepped in. Contrary to France, Spain’s biggest banks are relatively stable. The government is working to solve the problems of the small savings banks “cajas” in a serios of mergers. The process is slow but has some success.
This joins reports that local authorities in Spain have accumulated unpaid bills worth 50 billion euros.
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