Spain's regional governments: How they got into trouble
Published: 23rd Jul 2012 19:16:38
Spain's 17 regional governments are a big part of the country's financial problems.
Like the regional savings banks, they are victims of the country's property boom and bust.
During the boom years, regional government tax revenues were swelled by stamp duties on property sales, and by income taxes paid by immigrants that came to work on the country's construction sites.
The boom was felt most strongly on the Mediterranean coast, where hotels were built for tourists and villas for pensioners and the wealthy.
The regional governments also found themselves spending more - on big infrastructure projects, on education for the immigrants' children, as well as on providing increasingly expensive healthcare, especially for the growing elderly population.
Then the bust came.
Tax revenues - not just stamp duties, but also income taxes and the VAT earned from consumer spending - have collapsed during the recession.
Yet the regional governments' spending commitments - health, education, and half-complete construction projects - have not gone away so suddenly.
Their collective budget deficits - how much they have to borrow each year to fund their overspending - was 2.9% of Spanish economic output (GDP) in 2011.
That was about a third of the 8.5% deficit recorded by the Spanish public sector as a whole (national and regional together), and well above the 1.3% target that had been set by Madrid.
This year's target is 1.5% of GDP, but looks just as unlikely to be met.
Meanwhile the regional governments have found it near impossible to borrow - neither from the capital markets, nor from their troubled savings banks.
The central government in Madrid has already set up an 18bn-euro (£14bn) Regional Liquidity Fund to provide the regional governments with bailout loans.
Here's a run-down of the main regions to watch:
In July Valencia became the first region to ask for money from the central government's rescue fund.
One of the most financially troubled regions, Valencia's name has become particularly associated with white elephant construction projects - a problem across the country.
The Castellon airport, opened in March 2011, has yet to receive a single commercial flight.
And critics see the sprawling City of Arts and Sciences - a gleaming complex which was inaugurated in 1998 and added to over 15 years - as a symbol of excess, which they say went three times over budget.
This is one of Spain's smallest regions.
Yet news that Murcia would join Valencia in requesting a bailout sent the Spanish government's own borrowing cost on financial markets to a new record high.
Like the other Mediterranean coastal regions - Catalonia, Valencia and Andalucia - Murcia has been at the sharp end of Spain's construction boom and bust.
Its failure to manage its finances is a worrying portent for its much bigger neighbours.
The region with the biggest economy in Spain, Catalonia, also has the biggest debts.
The Catalans consider themselves a separate nation within Spain with their own language.
They have been pushing for the same level of financial autonomy already granted to the Basques.
Because of its relative wealth, Catalonia contributes about 10% of its GDP each year to provide financial support to the rest of Spain - a source of some bitterness in Barcelona.
On top of this, the government has been borrowing heavily to support its own economy, which has been particularly hit hard by the economic downturn.
The Catalans are loathe to ask Madrid for a bailout. In the last two years the regional government instead turned to the patriotism of its own citizens, selling them bonds to finance its budget shortfall.
However, Catalonia has already borrowed 2bn euros in short-term loans this year from the central government's development agency, ICO, in order to pay its bills.
The enormous southern region of Andalucia is the most populous in Spain.
It is also one of the poorest - which is ironically something of a blessing in disguise.
It has made Andalucia the biggest recipient of net spending by the central government - something that has helped to prop up the region's economy, and that has ultimately been paid for by the much wealthier citizens of Catalonia and elsewhere in Spain.
It has helped the regional government keep its own spending under control, and Andalucia has relatively little debt given its size.
A lot of central government spending goes on Andalucian unemployment benefits.
The unemployment rate in the region has always been among the highest in Spain - a country which as a whole suffers from chronically high joblessness.
In the current recession, it has risen to 33% as of March 2012. Youth unemployment was 58%.
But Andalucia's dependence on Madrid's largesse also means that it is particularly exposed to spending cuts by the central government.
And if Madrid cuts back too savagely, it could be that it simply ends up having to provide Andalucia with a bailout loan instead.
This central Spanish region, home to Don Quixote and his windmills, has the biggest overspending problem in Spain and a relatively heavy debtload.
However, the scale of La Mancha's problems only came to light after its government changed hands last year.
The new centre-right government is pursuing aggressive spending cuts, but has also said it is open to the idea of borrowing from Madrid's rescue fund.
In 2009, La Mancha's savings bank became the first of many regional banks to be rescued by Madrid, after it was sunk by bad loans to property developers.
As with the savings banks, investors are concerned that La Mancha's regional government may simply be the first to come clean about the scale of its problems.
One of the most heavily indebted regions, the Balearics has so far rejected any suggestion that it may need a financial rescue.
However, the government for the islands of Majorca, Minorca and Ibiza is struggling to pay its creditors.
For example, pharmacies have complained that the government still owes them 90m euros of back-payments.
Harvard CitationBBC News, 2012. Spain's regional governments: How they got into trouble. [Online] (Updated 23 Jul 2012)
Available at: http://www.ukwirednews.com/news.php/1442211-Spains-regional-governments-How-they-got-into-trouble [Accessed 20th May 2013]
At 07:51:39 in Northern IrelandTalks in Cardiff involving senior police officers, politicians, republicans and loyalists have been called positive and constructive. ...
At 07:49:44 in PoliticsPlans to legalise same-sex marriage in England and Wales return to the Commons later, amid continuing opposition from some Conservative acti...
At 07:47:22 in WalesResidents concerned about an £800m plan to build a gas-fired power station at a village near Wrexham are being invited to a public meeting o...
At 07:47:12 in ScotlandAbout 30 firefighters are tackling a blaze affecting a row of six shops and an office n Glasgow....
At 07:45:37 in HealthThe risk of developing bunions - bony growths on the big toe - is linked to your family, not your shoes, a US study has shown....
At 07:41:50 in HeadlinesFighting has raged in Syria's town of Qusair after government troops launched a major operation to seize the strategic rebel stronghold...
At 07:40:09 in EnglandThree teenagers arrested on suspicion of supplying drugs after a 16-year-old girl died in Warrington have been released on bail....
At 07:32:54 in WalesFurther details of police interviews with the man accused of murdering April Jones in a sexually motivated attack are due to be heard by a j...
At 07:28:38 in EnglandA man has been arrested after a person was found dead in a fire in Milton Keynes....
At 07:28:20 in BusinessDiscount airline Ryanair has reported record full-year profits and rising revenues, despite soaring fuel costs....
News In Other Categories
The risk of developing bunions - bony growths on the big toe - is linked to your family, not your shoes, a US study has shown....
Residents concerned about an £800m plan to build a gas-fired power station at a village near Wrexham are being invited to a public meeting o...
Scientists say the recent downturn in the rate of global warming will lead to lower temperature rises in the short-term....
Rod Stewart has scored his first UK number one album for 34 years, going straight to the top with his LP, Time....
About 30 firefighters are tackling a blaze affecting a row of six shops and an office n Glasgow....
Plans to legalise same-sex marriage in England and Wales return to the Commons later, amid continuing opposition from some Conservative acti...