More cuts needed, says Bank of Spain

How to improve growth and create jobs? Cut public spending. How to elude pressure from the financial markets? Cut public spending. How to become more competitive? Cut public spending. A major portion of the annual report released by the Bank of Spain is devoted to a defense of belt-tightening, not just as an unavoidable measure (the public deficit was in excess of nine percent of GDP last year), but also as the most efficient way to leave the economic crisis behind.

Once the prescription has been written out, the institution headed by Miguel Ángel Fernández Ordóñez goes on to demand discipline in order to avoid deviations from the norm.

"Strict compliance with announced plans is inexcusable," said the central bank chief at the report's presentation on Wednesday.

Fernández Ordóñez pointed straight at the regional governments as next in line for some budgetary streamlining.

"Nearly half of the adjustment measures [...] should be undertaken by regional governments and local councils," reads the report, which praises the government's plan to bring the national deficit down to 3 percent of GDP.

In order to make the plan a reality- and more importantly, to ensure that investors believe it- the central bank recommends setting a ceiling on annual spending for the regions, in line with the ceiling already in force for the central administration.

The report noted that, at the regional level, "spending deviations from budget forecasts were systematic, and exceeded three percent annually between 1984 and 2007."

Although Brussels has applauded Spain's recent efforts to rein in public spending through austerity measures, these have been enforced at the central government level. Given the country's decentralized system, which grants wide powers to the regions, these are now being asked to conduct their own spending cuts to contribute to the overall deficit reduction.

The Bank of Spain applauds some of Madrid's measures to curb regional spending, such as prohibiting their governments from issuing new debt, but the report also urges "considering the possibility of sanctions as an additional disciplinary measure."