Montoro reserves 8.5 billion for regional governments

Minister of Finance Cristóbal Montoro unveiled yesterday in Congress the 2012 National Budget. The strictest in the history of democratic Spain, the budget is based on the premise that "Spain is not going to waver in meeting its public deficit goal" even though, Montoro admitted, "we are in a tight situation."

The deficit has to shrink from 8.5% to 5.3% of the GDP this year, which equates to a 27.3 billion-euro reduction, a cut that could eat up either of the two biggest sections of the budget: paying interest on debt (28.848 billion) or paying for unemployment benefits (28.805 billion).

The cut is also greater than the national government spends paying all its employees: 27.339 billion. With these figures on the table and with Spain trying to meet the EU?s strict budget requirements, investors and the markets are watching closely as Montoro lends a helping hand to governing entities that may face significant difficulties meeting their obligations: the regional governments. In 2011 they struggled most to meet budget. The Ministry of Finance has reserved an additional 8.455 billion euros in the available spending section of its budget (30.2% more than originally budgeted, bringing the total to 36.489 billion euros available) for regional governments that are within their budget.

How? Through a financing system, a payment-by-installment plan with service providers, a 50% cash advance on resources from the financing system, and a line of ICO credit to make payments on their financing. Still, the buffer comes with a trick, because the regional governments will be forced to comply strictly with the Law of Budget Stability starting in May.