The Valencia inheritance

It was mere chance that the ongoing Gürtel trial - which has placed former Valencian premier Francisco Camps in the dock for bribery charges - should coincide with several manifestations of the liquidity crisis in the Valencia region's public finances. There are two particularly eye-catching cases: the fact that the region failed to cover a retail public bond auction (1.058 billion euros unsold from the 1.8 billion objective) and the recent move by the central government to guarantee an unpaid loan owed by the region to the tune of 123 million euros.

But perhaps it wasn't chance, but rather necessity. The fact that the Valencia region is the most indebted in Spain (19.9 percent of its GDP) and that its finances have got progressively worse is explained only partly by the deterioration of the economic situation. The state of the region's finances is connected to the abysmal management (as well as a number of absurd investments and the toxic banks complicit in them) that is currently in evidence in court. Because if a regional leader must devote his time and his efforts to preparing his defense, as was the case with the ex-premier Camps, he must have had scant energy left to ensure that public funds were being properly managed.

The liquidity problem faced by his successor, Alberto Fabra - which has seen pharmacies go unpaid and nearly left civil servants without their salaries - is like that being faced by his colleagues. The difference is the scale, and the speed with which he is dealing with the problem. Delays are a serious issue when it comes to finances, because they see debt levels quickly snowball. An excess of optimism is a similar problem. A symptom of this is the fact that Fabra's government has already had to raise the level of its cuts by one billion euros just 10 days after approving its 2012 budget. This would appear to be a case of a poisonous budgetary legacy, in which the regional conservatives are both responsible for causing the problem and now with solving it.

The Fabra government this week tried to minimize the scale of the agreement, claiming that it was "nothing extraordinary." That argument is not convincing. If the central government had to act to save Fabra from the problems of a 123 million-euro debt, it was because the region was unable to deal with what is a relatively small amount - that would suggest it has barely any room for maneuver with its finances.

If only this weren't the case, because then the integrity of the region's management and the value of its debt - practically at junk-bond level - would not be called into question. This is why a system whereby control of the regional budgets, similar to the European system, is needed, as Economy Minister Luis de Guindos proposed on Wednesday. He has the legal backing to introduce such a system, given that a ruling by the Constitutional Court on July 20 last year - which stemmed from an appeal by the Catalan parliament against the General Law of Budget Stability - says that the state can impose public-spending limits on all of the regional governments.