Spanish regions rebel against deficit targets

MADRID (AP) -- A growing number of Spain's regions are rebelling against central government attempts to rein in their spending, threatening the country's efforts to convince investors that it can manage its finances.

A meeting called Tuesday to slash the 17 semiautonomous regions' total deficit to 0.7 percent of Spain's economic output by next year was boycotted by the powerful northeastern region of Catalonia while the chief financial officer for the southern Andalusia left the meeting early in protest.

Two other regions, Asturias and the Canary Islands, voted against the proposal, which was eventually approved by a majority of the regional governments.

Finance Minister Cristobal Montoro warned the regions that the federal government would not tolerate any deviation in the deficit targets. Curbing Spain's central and regional deficits is seen as key to satisfying Spain's 16 euro partners that it is in control of its finances and in bringing down the country's borrowing costs.

"I am not worried because nobody is going to put the deficit at risk," Montoro said. He intimated the regions could be obliged by law to comply.

The rebel regions accuse the central government of being inflexible in maintaining 2012 national deficit targets of 3.5 percent of gross domestic product and 1.5 percent for the regions despite the fact that Spain has been allowed to raise its overall 2012 target of 6.3 percent from the originally agreed 5.3 percent.

Andalusia complains that its finances are in relatively good shape and that such austerity this year and again in 2013 would choke it.

Meanwhile, Catalonia, the region with most debt, said it boycotted the meeting because Montoro was not open to alternative proposals.

This week Catalonia announced that severe cash flow problems meant it won't be able to make July payments to dozens of private social service suppliers including hospitals, child-care centers and retiree homes. The region also admits it may have to join two other regions in tapping a new central government loan fund for cash-strapped regional governments although it denies that this would basically constitute a bailout.

Spain's is in its second recession in three years while its regions and banks have mounting debt and deficits following a real estate crash in 2008. The country has an unemployment rate of nearly 25 percent unemployment and is struggling to avoid having to seek a financial bailout like those sought by Greece, Ireland, Portugal and Cyprus.

The other 16 countries that use the euro have already agreed to lend Spain up to (EURO)100 billion ($123 billion) in loans for its troubled banks. A sovereign bailout for the country, the eurozone's fourth largest economy, would be far costlier and could seriously challenge the eurozone's finances.

U.S. rating agency Standard & Poor's Wednesday acknowledged the Spain's commitment to its austerity and reform measures when it affirmed its credit score at BBB+. However, the agency warned the country could be subject to further downgrades.

The country's Treasury will face a fresh test of investor sentiment Thursday when it auctions bonds maturing in 2014, 2016 and 2022.

The interest rate for Spain's benchmark 10-year bond on the secondary market remained perilously high Wednesday at 6.6 percent. A rate close to 7 percent is deemed unsustainable for a country over the long term.

The financial market pressure has eased on Spain over the past week after remarks from European leaders that they work to help save the euro.