Spain Introduces Region Debt Ceilings to Deepen Budget Cuts

The Spanish government will introduce debt ceilings for the 17 semiautonomous regions as part of its plan to deepen budget cuts and prevent any default without further burdening the central government’s finances.

The average limit is 15.1 percent of gross domestic product for this year and 16 percent for next year, Antonio Beteta, deputy minister for public administration, told reporters in Madrid today following a meeting between the regions and Budget Minister Cristobal Montoro.

A majority of regions voted in favor of the budget goals that are calculated indivually, Montoro said.

Montoro is seeking to impose more austerity on the regions after efforts to provide them, as well as cities and the welfare system, with liquidity-burdened state finances. The government’s first-half deficit exceeded its full-year target, data showed today.

Prime Minister Mariano Rajoy is struggling to avoid a broader bailout after gaining the right to borrow as much as 100 billion euros ($123 billion) from European rescue funds for Spain’s banks. The country’s budget gap, the euro area’s third largest, remained almost unchanged from 2010 at 8.9 percent of GDP last year.

The yield on Spain’s 10-year bond rose 14 basis points to 6.75 percent today, compared with a euro-era high of 7.75 percent on July 25 even as Rajoy announced his fourth round of austerity measures since Dec. 30. It fell after European Central Bank President Mario Draghi said last week he would do whatever is needed to protect the single currency.

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