The Spanish Regions

Spain Deficit Goals at Risk as Cuts Consensus Fades: Euro Credit – Bloomberg.


Much of the pain in Spain is being borne by the regions, akin to American states. Spain has been using what I call the California plan. Since the GFC struck in 2008, California has been shifting costs from the state government to its municipalities. These political subdivisions can only cut services and attempt to renegotiate deals with public unions, because they are not allowed to raise current tax rates or levy new taxes. Slowly but surely, these municipalities drive towards bankruptcy with three so far and more on the way.

Spain has been playing the same game. It has been shifting costs to its regional governments who are constricted in their ability to raise tax revenues. Several regions have applied for bailouts from an €18bn fund set up by the central government. As with all euro-bailouts, this sum is insufficient. The regions will need a larger bailout, and this sum is not computed into the figures thrown around by the MSM.

Spain will eventually need a large bailout for the central government, regions and banks. The only question is when it asks for the funds.


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