Spain’s regional governments agree to spending limits

Spain’s 17 regions agreed Wednesday to limit their budgets and deficits at the request of the socialist government in a bid to reassure markets nervous over high levels of regional debt.

“Autonomous communities agreed to transmit to their respective parliaments (a project for) a budget ceiling within six months,” the finance ministry said in a statement after a meeting between regional government representatives.

The measure was unveiled in late June by Prime Minister Jose Luis Rodriguez Zapatero in a bid to calm markets fearful that Spain may be the next eurozone nation to need a debt bailout.

Spain’s regional government debt, at about 121 billion euros ($174 billion), is a major concern for markets which fear it could compromise the central government’s goal to cut the annual public deficit down to 6.0 percent of Gross Domestic Product this year, and to a eurozone limit of 3.0 percent in 2013.

While the central government managed to cut the deficit from 11.1 percent of GDP in 2009 to 9.24 percent in 2010, the regions pushed up their deficit from 1.92 percent to 2.83 percent, above the official ceiling of 2.4 percent.

Moody’s Investors Service warned last month that regional governments’ credit ratings were under threat unless they took further measures to rein in budgets.

Spain has a highly decentralised system of government and budget management, with its 17 regional governments having considerable autonomy, including the right to issue bonds to finance their expenses.

They run schools and hospitals and account for around one-third of general government expenditures — and just over half of the nation’s total number of civil servants.

Wednesday’s meeting also agreed on new objectives for the regional deficits in years to come: 1.3 percent of GDP in 2012, 1.1 percent in 2013 and 1.0 percent 2014.

The meeting was the first of its kind since Zapatero’s ruling Socialists suffered an unprecedented mauling in regional and municipal elections on May 22.

Support for the government collapsed in the face of the beleaguered economy, the highest unemployment rate in the developed world and massive week-long street protests.

The rout was a grim omen for the party ahead of general elections due by next March, when the conservative Popular Party of Mariano Rajoy is widely expected to romp into office after eight years in opposition.