Even as Spain imposes austerity measures to slash its deficit, a fiscal crisis is brewing in the country’s 17 regions, which spend almost double what the national government does. After lavishing funds on everything from theme parks to orchestras during a decade-long boom, Spain’s local and regional governments have nearly $200 billion in debt, says Bloomberg BusinessWeek.
Regional governments have agreed to a 5 per cent reduction in salaries and a promise to replace only 10 per cent of retiring employees. Yet “they may have to cut deeper,” says Standard & Poor’s analyst Myriam Fernandez de Heredia. With Spain’s economy forecast to shrink 0.3 per cent this year, she warns that tax revenues may fall short of projections:
More than most European countries, Spain has ceded power to regional governments. They finance most education and health care as well as other social initiatives:
Adding to their budget woes, regions have created public companies and foundations to finance everything from stadiums to medical research:
Meanwhile, Madrid’s regional government has an agency that provides services to people from the capital who are living abroad.
Source: Carol Matlack and Emma Ross-Thomas, Why the Pain in Spain Will Get Worse, Bloomberg BusinessWeek, August 1, 2010.
For more on International Issues: http://www.ncpa.org/sub/dpd/index.php?Article_Category=26
First published by the National Center for Policy Analysis, United States
FMF Policy Bulletin/ 10 August 2010
