Regional governments still running a deficit

Budget decisions are riddled with the haw and hem of politics. The decisions that the Spanish national government adopted in its negotiations with regional governments were no exception. Finance minister Cristóbal Montoro warned the regions a year ago that his department was tracking daily how regions were paying their service providers and managing their budgets.

He also threatened the regions with an intervention if they did not meet their budget deficit objectives by year end. Now that five of the regions were far from meeting their goals, it looks like Montoro has forgotten what he comitted to do. Following the Council on Tax Polixy held on Thursday, the Minister is ready to accept various deficit caps for each regional government based on what efforts they have made to date.

It is a unique formulas propelled by Catalonia, Valencia and Andalucia -- three of the regions not able to reduce their spending -- provided that the EU will approve Spain's request to reduce its national budget deficit goal. So how will officials measure the "effort" that governments have made to cut their spending? Results will vary depending on whether financials are measured in absolute or percentage terms. At any rate, we will soon see the true scale of sacrifices made by regional governments.

It seems like Montoro is inclined to measure cutback measures quantitatively, which will allow the national government to ease pressure on Catalonia and its efforts for independence. The issue is that tensions will rise between regions that met their goals and those that didn't, incentivizing future non-compliance.