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Spanish Regional Governments to Get Aid

January 20, 2012 by Leave a Comment

Budget Minister Cristóbal Montoro said Tuesday that the government would create a credit line and advance about $10 billion to the regions, money they were not scheduled to get until later in the year.

The regions need the cash to pay suppliers, many of which are small businesses that have not been paid in months, even years, and are struggling to stay afloat.

But at the same time, Mr. Montoro said that Madrid would also seek new legislation to set penalties for regions that failed to comply with strict budget targets.

“I have no qualms about helping them, but neither do I have any qualms about being more demanding of them,” Mr. Montoro said after his first meeting with all the regional economic ministers.

Spain’s highly autonomous regions have spent recklessly in recent years — on generous public services and expensive capital projects, some of which look ridiculous in hindsight. Two regions, for instance, have built large airports, though virtually no one uses them.

And the regions’ failure to pay their creditors is now endangering many small enterprises, which are the backbone of the Spanish economy, already suffering from more than 22 percent unemployment, the highest in Europe.

Despite pressure from Madrid to rein in their budgets, many regions failed to meet their budget goals this year — a huge factor in Spain’s failure to meet its targets.

Just a few weeks ago, Prime Minister Mariano Rajoy announced a new $19.3 billion package of tax increases and budget cuts — intended to offset the impact of the unexpected jump in the 2011 public deficit to 8 percent from the 6 percent originally forecast.

Mr. Rajoy, who took office in December, quickly identified the regional government spending as a major problem that has to be dealt with. But he seemed to strike a more conciliatory tone this week as the government moved to help regions.

“We are all the state, and the Spanish government cannot remove itself from what is happening to the regional governments,” Mr. Rajoy said Tuesday, adding that he would not allow any regional government to go bankrupt as long as it met its budget goals.

Markets seemed to react positively to Mr. Rajoy’s new measures.

Spain was able to sell $8.5 billion in bonds on Thursday — more than expected, and at a better price. The sale suggested that markets had shrugged off the country’s downgrade last week by Standard Poor’s.

Yields that the country pays on 10-year bonds fell to 5.4 percent on Thursday, down from a high of 7 percent in November.

Spain’s system of autonomous regions was developed in the aftermath of the dictatorship of Francisco Franco. After years of repression, regions pressed successfully for as much freedom as possible.

They are generally in charge of administering schools, universities, health and social services, culture, development and, in some cases, policing. And the central government has until now had little ability to interfere.

But in recent years, the regions have been faced with some intractable problems. Education and health care have been particularly problematic, because those costs have been growing. At the same time, some main sources of financing — taxes on real estate sales and building permit fees — have dried up with the collapse of the housing boom.

For that reason, some regions may actually want the central government to take back some responsibilities, as was suggested in July by officials from the regions of Murcia, Valencia and Aragón.

Rachel Chaundler contributed reporting.

Article source: http://feeds.nytimes.com/click.phdo?i=5c92f501e306b52e57ddceccff66000c

Filed Under: Business News Tagged With: , ,

More Time to Buy in Italy, but Is That a Good Thing?

January 6, 2012 by Leave a Comment

ROME — The first days of the new year have heralded a subtle revolution in Italy: the deregulation of operating hours for commercial venues like shops, bars and restaurants. And as revolutions tend to go, the measure has aroused praise in some corners and howls of protest in others.

Introduced in December as part of Prime Minister Mario Monti’s crisis-averting package, known as Save Italy, the measure permits shopkeepers everywhere to set their own hours and sharply reduces the norms that once regulated entrepreneurs trying to set up shop.

Although many consumers cheered, thrilled at the prospect of buying milk, bread or whatever after hours, small-enterprise associations — as well as number of regional government leaders — have denounced the new rules, calling them the death knell for mom-and-pop stores already struggling in Italy’s recessionary economy.

“People don’t buy in a moment of recession. If your buying power is limited, that isn’t going to change if a store stays open later,” said Valter Giammaria, president of the Rome chapter of Confesercenti, an organization for small and midsize businesses. His organization, he said, is considering shutting down stores in protest.

Mr. Giammaria said that small retailers in Italy were already being squeezed by competition with supermarkets, not to mention the slumping economy, and that in Rome alone 10,000 small shops had closed in the past three years, putting about 35,000 people out of work.

“The government has to rethink this whole thing. Otherwise it is only going to help large chain stores,” he said. “We’re on the side of small retailers.”

By that he means people like Angelo Salis, who operates a tiny bar in central Rome with his grown children and fears having to work longer hours — and Sundays — to stay in the game. “It’s fine if you own a large business, with lots of employees, but when it’s all in the family, I just don’t know,” Mr. Salis said, shaking his head.

Local residents’ groups are also on the warpath, fearful that giving bars carte blanche will make for sleepless nights.

Mr. Monti’s fledgling government has earmarked several ways in which to encourage growth in the Italian economy, which has been at a near standstill for the past decade. These include opening up closed occupations and measures to promote competition.

But judging by the protests against deregulation of business hours these days and the failed attempts last month to loosen up access to professions like taxi operators and pharmacists, Mr. Monti is facing an uphill battle.

Presidents of several Italian regions, which have traditionally overseen laws regulating some aspects of retail commerce, complain that the legislation is encroaching on their territory and have pledged to fight the changes in court. “Consumerism is not the right response to the crisis,” Enrico Rossi, president of the Tuscany region, told ANSA, a news agency. “It is an insult to our cultural identity, out traditions and our history.”

“We expect the church will make its voice known,” he added. The Vatican has so far kept quiet on the issue.

Some economists who study the retail sector acknowledge that keeping stores open longer is unlikely to increase spending, especially at a time when Italians are paying higher taxes and tightening their belts. But the effort to encourage competition is a welcome signal in a country with a corporate mentality that dates to the guilds of the Middle Ages and is averse to change.

“Economically, this won’t change anything,” predicted Roberto Ravazzoni at the Center for Research on Marketing and Services at Bocconi University in Milan. What counts is the spirit of the reform, he said, “because it is moving towards greater competition. The government’s just started with something easy.”

The issue has “made a lot of noise,” he added, “because it touches on so many aspects of society, like work, labor, family, as well as religion. It’s way beyond economics.” Still, though the economic impact might be limited, the social consequences will not be, Mr. Ravazzoni predicted, “giving options to people crushed by time.”

As salaries are unlikely to grow in the current climate, “giving them the option of when to buy, we can at least simplify the life of consumers,” he said.

Article source: http://feeds.nytimes.com/click.phdo?i=69cb6db7a07536cbc1e9c4ef3fa40d17

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As Spain Trims Deficits, Scrutiny Falls on Regional Governments

December 31, 2011 by Leave a Comment

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

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