Earlier this year, I wrote a couple of articles about the problem assessing the true scale of debt in Spain. This was at the time that Prime Minister Zapatero was being applauded by the EU for bringing in austerity measures to bring the national debt and spending of Spain under control. My concern was that the EU and other economists had not taken into account the problem of regional debt in Spain – and the debt burden of the town councils (Ayuntamientos) across the country.
My instinct was that the town councils were terribly in debt with examples already being publicised about some town halls in Spain teetering on bankruptcy. Indeed, over the past few months some horror stories have been emerging of town halls with no money that have not paid their employees for months and that have not paid bills to suppliers for a year or more.
Well, a Spanish site (politikon.es) has just published some data on ‘local’ Spanish debt which is genuinely shocking and confirms the worries I expressed earlier in the year. In some excellent graphs, Politikon show the debt of the four worst regions (Catalonia, Valencia, the Balearic Islands and Castilla La Mancha) all of which have colossal debts and all of which saw their debt levels rocket up from mid-2007 onwards.
However, perhaps more interesting and accessible is the position of some of the town halls in Spain. Many of these have huge debts, as you can see from the graph (with data from 2010) below:
As you can see there are some familiar names to us all including Benidorm (93.1 million Euros of debt), Torrevieja (69.2 million Euros of debt) and Murcia (258,6 million Euros of debt). Madrid has an incredible 6776.9 million Euros of debt and Valencia City 834.3 million Euros of debt.
All of these are huge sums but what makes them significant is when you look at the debt to annual income ration – in which case, you can see that Madrid’s debt is a whopping 159% of its income!
Meanwhile, my beloved Gandia has 95,8 million Euros of debt on an income of 104.3 million Euros, meaning that the debt to income ratio is 92%. In effect, with a population of some 80,000, every living being in Gandia is in ‘debt’ to almost 1,200 Euros.
Frankly, it does not take a financial genius to work out that it will take years for somewhere like Gandia to pay off its debt whilst, no doubt, struggling with an ever greater interest burden. As to Madrid – well, the mind simply boggles.
A comment made by the writer of Politikon certainly struck a chord with me and that was when he says that it is difficult to obtain information for smaller town halls in Spain. I am sure that is true and I truly shudder to think of the debt ratios of some of these places (there are 8,112 town halls, great and small, in Spain). So, Heaven knows what the ‘global’ amount of Spanish debt amounts to – in reality. It is probably best not to know.
Certainly the town halls in Spain are likely to be a financial drag upon the country as a whole. Run like mini-fiefdoms with no obvious accountability, the sheer lunacy of their spending during the boom years was extraordinary and will now come to haunt Spain for years to come…
I only wonder what the rest of Mediterranean Europe (Greece and Italy, for example) is like? If it is worse than Spain (and is ‘hidden’ within localised town hall over spending) then the current economic crisis is really set to run and run – despite what anyone does…
FURTHER RELEVANT INFORMATION ABOUT THE SPANISH ECONOMY AND SPANISH DEBT