Government to punish regions failing to deliver on deficit

The central government on Friday said it will punish regions that fail to meet their commitments to cap their deficits and debt.

Deputy Prime Minister Soraya Sáenz de Santamaría said sanction mechanisms will be included in an organic law that will flesh out an amendment to the Constitution last year that imposes fiscal discipline on all of the country's public administrations.

Speaking at a news conference after Friday's weekly Cabinet meeting, Sáenz de Santmaría said the punishments meted out to recalcitrant regions would reflect the extent to which they have failed to comply, and whether they have done so repeatedly. The law will also include "correction mechanisms" that will be imposed automatically on regions straying from their targets.

The organic law referred to by the Constitution will impose a ceiling on the public deficit of 0.4 percent of GDP from 2020 onward. The limit for each of Spain's 17 regions will be 0.14 percent of GDP.

Sáenz de Santamaría reiterated remarks made on Thursday by Finance Minister Cristóbal Montoro that the central government will not let any of the regions default on their debt obligations.

The new Popular Party's campaign to drill fiscal discipline into the regions comes in the wake of Spain's failure to meet its deficit-reduction target of 6 percent of GDP for last year by two full percentage points. The regions were largely responsible for the target being missed.

A number of the regions and other local authorities are in a parlous financial state. The central government had to intervene at the end of last year to prevent the region of Valencia from defaulting on a 123-million-euro debt repayment to Deutsche Bank.

The central government will present a draft version of the new organic law to regional leaders next Tuesday at a meeting of the Fiscal and Financial Policy Council.

Sáenz de Santamaría said the meeting would also address the situation of individual regions, particularly those who have liquidity problems, and explore how the central government can help.

"The government will work to ensure all of the public administrations meet their commitments and overcome their problems," the deputy prime minister said.

Separately, Sáenz de Santamaría urged the country's unions and employers to come up with more substantive proposals on overhauling the labor market.

"There doesn't appear to be an agreement on key areas of labor reform such as hiring, flexibility, collective bargaining and absenteeism," she said.