As much as a third of Spanish cities may not be able to pay their bills by the end of the year, as a crisis similar to that faced by U.S. states rips across the nation.
It’s yet another knock-on effect of Spain’s property slump, and while city council debts amount to just 3% of Spanish GDP, the primary threat is social implosion.
Because when government employers can’t pay their bills, people suffer and get frustrated:
“I am deeply ashamed to know that I won’t be able to pay our staff. They have got mortgages, children. What am I supposed to do?” said Jesus Manuel Ampero, mayor of Cenicientos, near Madrid. “We were not able to cover our payroll in June. Neither I nor our councillors have received anything for two years. I’ve had two heart attacks. My health is cracking. If we cannot solve this, I’m resigning.”
Pedro Arahuetes, mayor of Segovia and head of the federation’s finance committee, told The Daily Telegraph that councils had lost up to 30pc of tax revenues because of the property and construction crash, and a further 20pc in funding cuts by Madrid.
The latest Consenso Económico survey forecasts that GDP will contract by 0.8pc this year, with zero growth next year. Unemployment is already 19.9pc. The lesson of the early 1930s is that once slumps last much beyond two years they start to engender serious social tension.
Luckily they won the world cup! That should ease some of the domestic angst.
While in the end this will all likely be bailed out by the central government, it just means more debt for Spain, since the government runs at a deficit as it stands.