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Regions’ spending taking a toll on Spanish government

Christopher Werth Sep 1, 2011

Regions’ spending taking a toll on Spanish government

Christopher Werth Sep 1, 2011

Steve Chiotakis: Spanish lawmakers vote tomorrow on a new
constitutional amendment that would force the country to reduce its deficit and debt.

But Christopher Werth reports this morning, controlling spending in Spain will depend on what happens at the local level — in the country’s 17 political regions.

Christopher Werth: Spain’s regions are a bit like states in the U.S. They draft their own budgets and make their own spending decisions. But when they spend too much, Spain’s national government ends up footing the bill.

Gonzalo Gomez Bengoechea is an economist at IESE Business School in Madrid.

Gonzalo Gomez Bengoechea: This is one of the biggest problems that we have in Spain because there is actually no control over that part of the expenditure.

Take this gleaming new airport outside the small city of Ciudad Real in the hot, arid region of Castilla La Mancha. It’s one of Spain’s several so-called “ghost airports.” Built at a cost of over $1.5 billion, the hope was it would become a bustling travel hub serving Madrid, 140 miles away.

Today, I walk through an empty terminal.

Werth: So, I’m looking at the arrivals board here, and it’s not even turned on. It’s completely dead here.

Just a couple of flights go in and out of Ciudad Real each week. Even those flights are due to end in October. And the only thing keeping the project afloat is money from local taxpayers like Daniel Guzman.

Daniel Guzman: I’m disappointed because they’ve taken our money and spent it on an airport for a city of just 70,000 people. There was no need for such a big airport.

Regional governments across Spain have racked up over $165 billion in debt. Economist Gomez Bengoechea.

Gomez Bengoechea: So the government may ask them to reduce spending, but they can’t force them to reduce spending.

Ratings agency Moody’s has threatened a downgrade over Spain’s regional deficit problem. Edward Hugh, an economist based in Barcelona, says regional spending will derail Spain’s plan to drastically reduce its national deficit.

Edward Hugh: And the problem really is that the deficit was the only thing in the eyes of investors that the Spanish government had to put on the table to show we are a serious country.

That is, serious about not defaulting on its debts, and avoiding a bailout from its European neighbors.

In Spain, I’m Christopher Werth for Marketplace.

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