Court backs state over regional spending caps

The Constitutional Court has ruled that the central government has the right to impose limits on spending by the regions.

The ruling was issued Wednesday just ahead of a key meeting of the central administration/regional committee on fiscal and financial policy. The opposition Popular Party, which now controls the majority of the 17 regions in Spain after elections in May, has called for a moratorium on the return of excess funding disbursed to the financially stretched regions, a proposal that was firmly rejected by Madrid.

The Constitutional Court's decision came in response to a suit by the Catalan regional government claiming that the Law on Budgetary Stability usurped responsibilities afforded to Catalonia by its Statute. The Court said the conduct of economic policy was the prerogative of the state.

Speaking in Congress, Zapatero said the regions had an obligation to comply with the law on financial stability. "What kind of plan do you have for the country when you ask me not to comply with the law?" he asked in response to PP leader, and election hopeful, Mariano Rajoy.

The prime minister called for "loyalty" from the regions and their commitment to reducing their budget deficits this year to 1.3 percent of GDP.

"Commitments are there to be met, above all when confidence in the euro zone is fragile," Zapatero said.

The government wants the regions to accept a rule imposed by the central administration restricting growth in their spending to average previous and projected nominal growth in GDP.

Spain managed to trim its public deficit to 9.2 percent of GDP last year from 11.1 percent, but largely as a result of the central government, with the regions failing to meet the targets set for them. One of the main concerns of the financial markets is the ability of the central government to rein in spending by the regions.