Government extends some debt issue relief to all regions

The Spanish government will cut all of the country's liquidity-strapped regions some slack in its draconian deficit-reduction campaign after a number of them complained bitterly about the "preferential" treatment afforded to Catalonia, which is being allowed to issue debt despite failing to meet its budget targets.

Reacting to a chorus of disapproval from regions run by fellow Socialists as well as Popular Party administrations, the Economy Ministry said late Tuesday that all of the regions will be able to refinance debt maturing this year, regardless of whether they have met the deficit-cap target of 2.4 percent of GDP for last year imposed on them by the central government.

Economy Minister Elena Salgado on Wednesday clarified that regions wanting to refinance debt do not need to approve austerity plans justifying it beforehand as refinancing did not imply an increase in absolute debt levels. The minister said all of the country's 17 regions were allowed to refinance maturing debt last year, adding that there has been no change of policy this year.

The decision to allow Catalonia to go to the market had raised the hackles of a number of regional leaders, even those meant to be allies of Prime Minister José Luis Rodríguez Zapatero. "I can't accept and will not accept discriminatory treatment," José María Barreda, the Socialist premier of the region of Castilla-La Mancha, said Tuesday. Madrid Mayor Alberto Ruiz-Gallardón accused the Zapatero government of "clear discrimination against Madrileños." Zapatero earlier this year rejected a request by Gallardón to refinance maturing debt out of what the conservative Popular Party mayor claimed were "political reasons."

The incoming administration in Catalonia inherited its deficit from a tripartite government led by the regional branch of Zapatero's Socialist Party, and complained it barely had enough funds to pay local civil servants. Francesc Homs, a Catalan government spokesman, denied the northeastern region had received preferential treatment from Zapatero.

The government managed to reduce its budget deficit to about 9 percent of GDP last year from 11.1 percent in 2009 and is aiming to trim it to 6 percent this year through its austerity drive as it seeks to convince the markets it is capable of servicing its debt.