Spain eases ban on credit for municipal authorities

Spain’s Socialist government on Tuesday delayed until next year a proposed ban on municipal authorities applying for long-term credit.

The planned measure was first revealed in a new draft law published in the official government journal (BOE) on Monday, part of an austerity package aimed at slashing the public deficit.

“The local authorities and those that depend on them … cannot obtain long-term public or private credit, in any form, to fund their investments,” it said.

It said the ban would be effective immediately and last until the end of 2011.

But the BOE published a correction on Tuesday that said the measure would be imposed only on January 1, 2011.

It was not immediately clear why the change was made.

Spain’s federation of town halls is meeting Tuesday to discuss the measure, part of a two-year 15-billion-euro (19-billion-dollar) deficit-slashing plan announced earlier this month that includes a freeze on state pensions and an average five percent pay cut for civil servants.

The Socialist government is under pressure to take action from both its EU partners and from the markets, which fear Spain could follow Greece, which needed an unprecedented 110-billion-euro bailout by the EU and the IMF earlier this month to save it from bankruptcy.

Spanish Prime Minister Jose Luis Rodriguez Zapatero announced the main points of the latest austerity plan on May 11. The government approved it on Thursday but it must still be passed by parliament.

The cuts are on top of a 50-billion-euro package announced in January designed to slash the public deficit to the eurozone limit of three percent of gross domestic product by 2013 from 11.2 percent last year.