Like political promises, forecasts are made to be broken. This is now true of regional government debt in Spain. The Council of Ministers approved their new debt goals for 2014-2017 yesterday, increasing by 1.5% of GDP (around 11 billion euros) the total limit that these seventeen regions can amount by the end of this year. For 2015 and 2016, the debt limit will go up another percentage point.
Finance is expanding the debt limit, but this does not mean that the regions have to go further into debt. After six years of crisis, dried up credit markets, weak tax revenues and heightened public spending made the regions increase their debt load. Direct and tacit approval from up above helped. The truth is that up through March, regions had accumulated over 221 billion euros of debt collectively, which is 21.7% of the GDP. This means that in three months that have already met their yearly limit -- including the extension that Montoro is giving them. At this point, we need a major plan that cuts back regional government expenses without undermining critical public services.
Public Administration reform and restructuring public companies within regional governments is absolutely necessary. Half-done approaches will not work. Finance needs to rule with an iron first in order to avoid missteps that could jeopardize the recovery for everyone else in Spain.
