As Spain Trims Deficits, Scrutiny Falls on Regional Governments

Spain’s new prime minister, Mariano Rajoy, said the austerity package was needed to maintain the confidence of European bond markets after it became clear that the budget deficit was expected to reach 8 percent of gross domestic product this year — two percentage points above the government’s target.

And while Spain’s overall fiscal status is nowhere near as dire as Italy’s, it has another problem all its own, as the new budget minister, Cristóbal Montoro, made clear Friday: serious budget shortfalls in its 17 autonomous regions, which have spent recklessly in the past decade.

Evidence of the regional profligacy dots the countryside. On the top of a hill here in the birthplace of Salvador Dalí, in northeastern Spain sits a giant, empty penitentiary.

But even without a single prisoner in residence, the prison is costing Spain’s heavily indebted regional government of Catalonia $1.3 million a month, largely in interest payments. If prisoners were actually moved in, it would cost an additional $2.6 million a month.

So it sits empty, an object of ridicule around here, often referred to as the “spa.”

Analysts say the mistakes are adding up. The Bank of Spain announced this month that regional debt had surged 22 percent, to $176 billion in September from $144 billion the year before. And some experts say that there remain tens of billions of dollars in “hidden” regional debt yet to be discovered.

The financial state of the regional governments is so bad, in fact, that some may be willing — maybe even eager — to shed some of their wide-ranging and costly responsibilities, like health care and education.

Much as the debt crisis is forcing the European Union to refashion its relationship with its member countries, stepping up oversight and control, some experts believe that some of Spain’s autonomous regions may be less so in the future.

“Whether publicly or not, some of the regional governments are saying: ‘Take this away from me. I didn’t realize how difficult it would be,’ ” said Ángel Berges Lobera, an economist at the Universidad Autónoma de Madrid and an expert on regional debt.

In recent years, the regions and municipalities have racked up debts, offering generous public services and investing in a wide range of projects, some of them bordering on the ridiculous, critics say.

Castilla-La Mancha, for instance, an agricultural region bordering Madrid, built itself an airport complete with a runway big enough for jumbo jets. But it may close soon, as no airline — even with smaller planes — is interested in flying there.

Municipalities have not done much better. They have also been accumulating debt, a total now of about $48 billion.

One town, Alcorcón, about 10 miles southwest of Madrid, spent $150 million on a cultural center, complete with a permanent circus and free birthday parties for its children.

“It’s been chaos out there,” said Lorenzo Bernaldo de Quirós, an economist who has been critical of Spain’s system of autonomous regions, a structure developed after Gen. Francisco Franco’s dictatorial rule ended in 1975.

And there is that “hidden debt,” most of it in unpaid bills, which is not included in Spain’s total national indebtedness of $915 billion. That could easily amount to $25 billion to $40 billion more, experts say.

And the bad news probably is not over. Some experts believe that as newly elected members of Mr. Rajoy’s Popular Party take control of some regional administrations, they are sure to unearth even more financial excesses. That is what happened in Catalonia, where the “hidden debt” problem first popped up this year. When elections were held there in 2010, the ratio of debt to regional G.D.P. was believed to be less than 2 percent. But after the vote, the departing government disclosed that its full year deficit could be 3.3 percent. The new government later revised that figure again, to 3.8 percent.

Rachel Chaundler contributed reporting.

Article source: http://www.nytimes.com/2011/12/31/world/europe/as-spain-trims-deficits-scrutiny-falls-on-regional-governments.html?partner=rss&emc=rss