Spain to block credit for local authorites

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Spain's socialist government plans to bar local authorities from obtaining long-term credit until 2012 as part of further moves to rein in its public deficit, according to a draft law published Monday.

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

The ban is valid until the end of 2011.

The measure is part of a two-year 15-billion-euro (19-billion-dollar) austerity plan that includes a freeze on state pensions and an average five percent cut this year to civil servant salaries.

There have been concerns that local government debt could prove at least as big a problem as central government debt as eurozone countries try to put their public finances in order.

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

The measures are on top of a 50-billion-euro austerity 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.

The debt of local authorities at end-2009 was 34.6 billion euros, equivalent to 3.3 percent of GDP, according to the finance ministry.

Overall, accumulated public debt was equivalent to 55 percent of GDP in 2009 and is expected to rise to 74 percent in 2012 as the country's public finances are further eroded.

The figures, while above eurozone limits of three percent and 60 percent, respectively for the public deficit and total debt, are less than those in several other eurozone countries.

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

Unions representing public sector workers have called a strike for June 8 over the latest austerity plan, while Spain's largest trade union, the CCOO, said Friday it would "probably" also call a national general strike.

© 2010 AFP

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