‘Bankrupt’ claim heightens Spanish debt fears

The central Spanish region of Castilla-La Mancha is “totally bankrupt”, according to the incoming administration of the rightwing Popular party (PP), an accusation that will deepen concerns about Spain’s budget deficit.

The claim has prompted angry denials from the Socialist government.

Spain’s 17 autonomous regions and its more than 8,000 municipalities, with €150bn ($220bn) of accumulated debt between them, have become the latest worry for investors in Spain and its sovereign bonds.

Although the amount is less than a quarter of total public sector debt, regional debt has doubled since 2008. The 17 regions collectively exceeded official budget deficit limits in 2010, and appear likely to do so again this year despite repeated demands for compliance from the central government.

Catalonia, an economy the size of Portugal, says its deficit will be double the target.

Vicente Tirado, a senior PP politician in Castilla-La Mancha, said the region was “totally bankrupt”; owed suppliers such as pharmaceutical companies that provide drugs for hospitals a total of €2bn in unpaid bills; and would have trouble finding the money to pay the region’s 76,000 civil servants next month.

Marcial Marín, the PP’s economy co-ordinator in the region, accused the departing Socialist government of “the height of irresponsibility” and alleged that unpaid bills were being destroyed to hide the evidence.

“From the data that the PP has, Castilla-La Mancha is the Greece of Spanish regions,” he said, referring to the bail-out of the Greek economy by the European Union and the International Monetary Fund.

Mr Marín said the PP, which won the region from the Socialists in elections two weeks ago, would shut between half and three-quarters of Castilla-La Mancha’s 95 government owned companies because they duplicated the work of other organisations and were staffed mostly by Socialist party members.

The departing Socialist administration described the PP’s accusations as false and said PP leaders were scaremongering in order to prepare the way for cuts to public services.

At the national level, Socialist leaders have accused the PP of undermining Spain’s credibility in financial markets for domestic political ends and have noted that several PP-run fiefdoms have also exceeded their deficit limits.

Official data show, however, that Socialist-run Castilla-La Mancha was the worst-performing region last year, recording a deficit of 6.5 per cent of gross domestic product, compared with the limit for that year of 2.4 per cent.

Spain was able to meet its overall public sector deficit target of 9.3 per cent of GDP in 2010 only because austerity at the centre compensated for regional overspending.

Two opinion polls published on Sunday, meanwhile, predicted that the PP, led by Mariano Rajoy, would win national elections with a 13.8 percentage point advantage over the Socialists, under their leader in waiting Alfredo Pérez Rubalcaba.

Mr Rubalcaba is the hitherto unchallenged party candidate to replace José Luis Rodríguez Zapatero, the prime minister. A national election must be held within a year but the PP wants an early poll.

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