By Stefano Bernabei
ROME (Reuters) - Italy's provincial government association warned on Monday that schools may not be able to open after the summer holidays due to planned spending cuts, highlighting growing concerns about local finances in the euro zone's third-largest economy.
The comments follow Prime Minister Mario Monti's warning last week that the autonomous region of Sicily was on the brink of a default and come on the same day La Stampa newspaper said that 10 Italian cities faced serious financial difficulties - echoing similar problems in Spain.
"With these cuts we won't be able to guarantee the opening of the school year," UPI President Giuseppe Castiglione told reporters in Rome.
Speaking at the same news conference, Piero Lacorazza, president of the province of Potenza in southern Italy, said the comment was "not an exaggeration", adding that "half of the provinces are in serious financial difficulty".
Funding strains in Italian provinces follow on the heels of more acute regional fiscal problems in Spain, which have raised fears Spain may be the next euro zone member to require a full-blown bailout.
Spain's Valencia region said last week it would need financial help from Madrid and media reported that half a dozen regional authorities in Spain may need central government assistance.
As 10-year Spanish government bond yields hit 7.5 percent on Monday, reflecting market concerns about its finances, Italian yields were pushed higher in their wake. Ten-year Italian yields increased to 6.36 percent, rising above the Irish equivalent for the first time since January 2009.
Italian officials' comments, however, may also be designed to help negotiations as the provinces seek to soften the impact of a government spending review announced this month which seeks to chop through some of the tangled web of overlapping local government bodies.
"I think everyone is making their move now because negotiations are going on at the moment on how to distribute the cuts," a government official said, speaking on condition of anonymity.
The spending review unveiled plans for 26 billion euros in cuts over three years, including steep cuts to government funding for municipal, regional and provincial governments with a further 6 billion euros of cuts due later this year.
The provinces face cuts of 500 million euros this year and another 1 billion euros in 2013.
In addition, Italy's central government plans to halve the number of provinces from more than 100 at present as part of plans to slim down Italy's bloated government apparatus, prompting furious opposition from provincial politicians.
REVALUATION
Local funding problems underscore the growing pressure on all levels of government finances in Italy as the recession bites.
They also highlight the impact of cuts made to rein in Italy's 2 trillion euro debt pile on local authorities which have long complained of seeing their resources squeezed while they have been left in charge of many vital municipal services.
Moody's cut Italy's credit rating this month by two notches and also downgraded the ratings of 23 sub-sovereign bodies including local and regional governments.
"Regional and local governments are contributing to Italy's fiscal consolidation through fiscal tightening measures imposed by the central government," it said in a statement.
La Stampa quoted unnamed government experts as saying that 10 cities including Naples and Palermo face problems because of a provision in the spending review obliging local authorities to make a 25 percent cut in the book value of certain assets.
The assets in question include anticipated revenues from sources such as fines or waste management taxes, often over-estimated in budget plans by authorities that know they cannot expect to collect all of the projected funds.
The government is likely to insist that local and provincial governments fill their own deficits with tax hikes and spending cuts of their own before turning to Rome for help although local politicians insist that they have reached their limits.
Interior Minister Annamaria Cancellieri brushed off fears that Sicily would be forced to default but she acknowledged the serious problems faced by regions and local governments.
"There's a serious situation on the island as there is in other Italian regions," she said. "The important point is to have budgets as correct as possible to clean up these difficult situations."
(Additional reporting by Giselda Vagnoni and Giancarlo Navach in Milan; Writing By James Mackenzie; Editing by Susan Fenton)
