Spain regions tighten belts, narrow deficits

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Spain's regions tightened their belts in the third quarter and closed in on 2011 deficit targets, official data showed Monday, a dose of good news for the battered economy.

The 17 powerful regions -- whose spending is a major concern of markets -- curbed their combined deficit to 1.19 percent of Spanish gross domestic product (GDP) in the first nine months of the year.

The figure, announced by Finance Minister Elena Salgado, is close to the central government's goal, which limits the shortfall in regional governments to 1.3 percent of GDP in 2011.

In fact, the gap was narrower than the 1.21-percent deficit the regions had declared for June 30, meaning they showed a surplus of 192 million euros ($255 million) in the third quarter.

The figures were good news for Spain's incoming conservative government which is already under pressure to cut the deficit and reassure the markets that lend it money of its financial stability.

Key to lowering the country's overall deficit are the powerful regions, which manage costly budgets for spending on services such as healthcare and education.

Spain has promised to trim its overall national deficit, a big worry for financial markets, from 9.3 percent of GDP last year to 6.0 percent this year and 4.4 percent in 2012.

To do this the outgoing Socialist government imposed the strict deficit limit on the regional governments.

This has obliged them to enforce painful spending cuts that in some regions have closed hospital services and affected schools, prompting street protests.

The conservative Popular Party, which won a crushing victory in Spain's November 20 general election, has said it will slash spending further to meet the targets.

The Bank of Spain and the European Commission along with credit ratings agencies have warned that Spain risks overshooting these targets in part because of the regions' spending.

Credit rating agency Moody's Investors Service warned earlier Monday that "the incoming government will need to implement significant tightening measures in order to achieve its fiscal target next year."

At the end of June, 12 of the 17 regions had been on track to miss the targets, with the total deficit reaching 1.21 percent. But the September figures suggested the regions' cuts were working.

"We are beginning to see the results of this action," Salgado told a news conference. "The regions have contained their spending and their deficit."

For the whole of 2011 "the national state administration is going to meet its deficit target," she added.

"It is hoped that the autonomous regions continue on this path and that they too can meet their target."

© 2011 AFP

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