Spain Approves Regions’ $23 Billion of Budget Measures

Spain approved the budget plans of all but one region as the semi-autonomous states agreed to measures worth 18.3 billion euros ($23.2 billion).

The plans of 16 of the 17 regions were approved, Budget Minister Cristobal Montoro told reporters late yesterday after meeting local finance chiefs in Madrid. The approved plans will be published on the ministry’s website and Asturias, which has yet to form a government after elections, will have to present a new plan in two weeks, he said.

“This has been a success,” Montoro said. “Now the execution starts, and the vigilance.”

The ruling People’s Party, which has a majority in Parliament and controls most of the regions, changed the law last month to allow the central government to intervene in states that overspend. The regions, most of which have been locked out of public debt markets, need to cut their shortfall by half this year as part of the nation’s efforts to stem a surge in debt.

The states, which run schools and hospitals and hire half of public workers, agreed to cut 13 billion euros of spending this year and raise another 5.3 billion euros of revenue, Deputy Minister Antonio Beteta told reporters. Revenue measures include changes to fuel and income taxes as well as the creation of new taxes such as environmental levies, he said.

Market Access

The central government had already pushed regions to cut health and education spending in measures coordinated from Madrid. Most have lost access to capital markets, forcing regions including Catalonia and Valencia, the most indebted, to sell so-called patriot bonds to their citizens.

Fitch Ratings said the approval of the 16 plans was “positive” and could improve regions’ market access, even as the new measures risk having a “limited impact” in 2012.

“We consider that the willingness of autonomous communities to pass structural reforms has increased,” Fitch said in an e-mailed statement today. “We also expect the central government to put considerable pressure on the regions to co-operate.”

Spanish 10-year bond yields fell to 6.228 percent today from 6.314 percent yesterday. The premium investors demand to hold Catalan rather than Spanish debt due in 2020 widened to 360 basis points, from 351 basis points yesterday.

Accessing Markets

The government has said it won’t let any regions fail and is studying ways of supporting states so they can tap markets, Montoro said. A mechanism should be in place in July, he said, without giving details.

“The central government will be there,” he said. “We’re evaluating the best way of allowing the central government to be there, without giving the region any kind of shelter from its responsibilities.”

Regions are crucial to the government’s efforts to rein in the deficit as they control more than a third of spending. All but one missed their budget goal last year, pushing the national shortfall to 8.5 percent of gross domestic product compared with a 6 percent target. The government plans to cut the public deficit to 5.3 percent of output this year and Montoro said the central administration would take additional measures if needed to make sure it meets it.

To contact the reporter on this story: Emma Ross-Thomas in Madrid at erossthomas@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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