Spain: regions ‘on track’ to meet deficit targets

MADRID - Agence France-Presse

Spain’s Budget Minister Cristobal Montoro says Spain’s 17 regional governments have promised to cut the decficit to 1.5 pct of total income. REUTERS photo

Spain’s government said Sept. 13 the regions, whose red ink-strewn accounts have alarmed world markets, are “on track” to meet their deficit-cutting target this year.

The 17 powerful regions posted an average public deficit equal to 0.77 percent of gross domestic product in the first half of 2012, Budget Minister Cristobal Montoro said.

“The regions are on track to meeting the public deficit agreed by all of them,” Montoro told
reporters.

The regional governments have promised to cut the deficit -- the gap between income and spending -- to 1.5 percent of total economic output by the end of this year.

“So, it is a positive conclusion that also serves to put things right in relation to what is being said so freely and falsely about regional government accounts being out of control,” Montoro said.

“That is not the case, the figures are there,” the minister added. “There is no doubt that we have to carry on with our efforts to continue with this trend.” Spain’s regions, responsible for half of all state expenditure, are struggling to finance huge debts even as they axe spending on items such as health and education.

Prime Minister Mariano Rajoy’s right-leaning government will take comfort from the latest data, which come as the eyes of international investors focus on the nation’s accounts.

Meanwhile, German Finance Minister Wolfgang Schaeuble said Sept 14 he saw no prospect of Spanish banks being recapitalized directly through a European rescue firewall from the start of January.

“I don’t see a direct recapitalization of banks through the (European Stability Mechanism) as early as January,” Schaeuble said on arrival for Eurogroup finance ministers’ talks in Cyprus.

At the last European Union summit in June, leaders agreed to give the revamped 500-billion-euro ($645 billion) ESM rescue fund -- signed on Thursday by German President Joachim Gauck after clearing a constitutional court challenge -- the potential to recapitalize banks directly, currently not an option.
 However, this depends on a separate race against time to conclude tough talks on updated rules governing new EU-wide bank supervision by the turn of the year, also on the table in Nicosia.

In Schaeuble’s eyes, the agreement on supervision is a key factor underpinning recapitalization efforts.
Without direct recapitalization through the ESM, Spain would have to put advance borrowings onto sovereign debt accounts, pushing it closer to needing a full sovereign bailout.