Let’s move on to Spain.
A long while ago I mentioned that there would be problems with regional debts in Spain, Portugal and Italy. The reason I mention this now, is not to blow my own trumpet but to make it clear that no one should be believed if they claim to be surprised or to have only just realized. If I knew, they certainly knew.
Anyway, the regional debts are rising like badly buried corpses. In Spain the regions are very powerful. They control twice as much spending as the Central Government and employ over half of public sector workers. During the boom years the regional governments were the ones who worked closely with the regional banks, the Cajas and the property developers. Catalonia alone accounts for one fifth of Spanish GDP.
The regions are massively in debt and their borrowing costs are high or non-existent due to the debt market refusing to lend to them at all. Catalonia has been shut out since March. How much do they actually owe. Hard to say. But a smaller region, Galicia, last month asked the central government if it could delay repaying the €2.6 billion it owes to the central government. The government said no.
Over all the regions have a debt load at about 9% GDP. They have said they will cut this to 2.4% by the end of the year. Which strikes me as about as believable as Spanish building permissions. Now remember this 9% is on twice the spending the National government controls. So if they fail to deliver, which they obviously will, then this blows the entire Spanish recovery out of the water. The only solution for the Spanish government is the one every government has been using – just don’t talk about it. Keep the figures quarantined.
This data is surfacing for Spain. I have not yet seen any for Portugal nor for Italy. But you can bet it is there. Cities and regions are stuffed with bad debts. In a way they are a kind of internal off-shore for national debts. They don’t appear on national books and are nominally not payable by the nation. But of course, in the final anaylsis they do fall on the national purse. And does it matter to services and to people which level of government racked up the debts and who will make the cuts?
Rumania should get little mention as should Hungary. Neither is going to make their growth targets. Which means neither will cut their debts according to their agreed plans.
In short, European debt levels are giong to rise and the concerns over non-payment, and default are going to creep back up in the coming months. Flu and debt have a certain seasonality about them. And we are entering the season.