The regional governments in Spain have been blamed for creating the big holes in the country's public accounts, to a large extent caused by their overspending. The new regional budgets, however, presented to the government on Thursday, are “very far” from reaching the deficit target of 1.5 percent set for 2012.

In the budget meeting between the regional authorities and the government on Thursday, Budget Minister Cristóbal Montoro avoided giving details about how many, or which, among the 17 autonomous regions that risk their finances being intervened by the state if they don’t comply with the budget target.

The regions with the most troubled finances, however, are Catalonia, Valencia, Murcia, the Canary Islands, Andalusia, Asturias, Extremadura and Castilla-La Mancha.

Must be followed "at all cost"

Given the “magnitude” of the budget adjustments in these regions, the minister said they will be given a period to “initiate the appropriate corrections” which put the deficit target “at risk” and which must be followed “at all cost.”

The government will initiate bilateral talks with each of the regions and put into effect a disciplinary mechanism.

The regional leaders asked the government to soften the deficit target, but Montoro said the credibility of the nation is at stake in Europe. 

The European partners have repeatedly pointed out that Spain’s high deficit –8.9 percent in 2011– is primarily caused by overspending in the regions.

New deficit targets

Despite the fact that the Eurogroup agreed earlier this week to allow higher deficit targets for Spain for the next two years –from 5.3 to 6.3 percent in 2012, and 4.5 percent in 2013-, the government decreased the deficit targets for the regions in the meeting on Thursday.

The new targets will be 0.7 percent in 2013 and 0.2 percent in 2014, which was achieved by 12 out of 17 regions voting in favor, two abstentions and four regions voting against it.

The two regions that decided to abstain, Extremadura and Castilla y León, clearly rebelled against the government, given that both are led by the centre-right Popular party, the government party.

The PP leaders of the two regions said there had already been a “huge effort” last year, and that they could not guarantee compliance with the deficit, although they will do “as much as possible” to reach the target.

Four votes against new targets

The four regions that voted against the new targets - Asturias, the Canary Islands, Catalonia and Andalusia - were critical against the government’s new adjustment policies, accusing them for double standards, given that they require more efforts from the regional authorities than from the national government.

Montoro did not, however, give in to the critic: “The autonomous regions will comply with the agreed targets whichever political party is in power.”

To ease tensions, the minister said a new mechanism is about to enter into effect that will help finance the regions with liquidity problems.

The new instrument will only address determined payments, which the regions are unable to meet, and will only be used in “exceptional” cases.

The regions that will make use of this state support will be subject to “a very high level of conditionality” in order to guarantee the “compliance with the regional budget balances,” according to Antonio Beteta, state secretary at the Ministry for the Treasury.

This article was translated and edited by Stina Lunden.