This year regional governments have to lower deficit/GDP ratio to 0.7%. This means that all of them will need to cut spending and increase revenues in order to shift their annual budget by 10 billion euros -- one percentage point of GDP. As a comparison, last year their efforts allowed regional governments to balance the budget by nearly 17 billion euros.
Further, the regions are at the end of their credit lines. According to data from the Bank of Spain, aggregate debt of all regions through September of 2012 was around a tenth of 16% of GDP, which is the same objective for all of 2013, for a total of 167.5 billion euros. This indicates that the regions will not meet their deficit goal for 2012 (15.1% of GDP) or 2013. Debt is a major part of the deficit, and this heavy debt load continues to increase because of high interest rates. High debt plagues Castille-La Mancha, Andalucia, Baleares, Catalonia, Murcia and Valencia the most. The other five regions didn't meet their deficit objectives last year either and will struggle to do so in 2013.
A region's financial situation can be understood best by comparing its level of debt to revenues. For example, Castille-La Mancha surprised everyone by hitting a deficit/GDP ratio of 1.53% and complying with its target, but increased its overall debt by 5%. To meet their goals, the regions are differing payments to service operators in order and getting money from the Autonomous Community Liquidity Fund. For these reasons, the EU insists that the Spanish national government applies the Law of Stability to the regions and that it takes active measure if they cannot comply. This forceful measure could fail if the regions lower their guards and if the Ministry of Finance does not put its money where its mouth is.
