World Bulletin / News Desk
Spain's central government said on Thursday it would soon back the debt repayments of the country's 17 regions and start proceedings this month to take over the finances of a group of regional budget sinners.
After meeting regional heads of finance, Treasury Minister Cristobal Montoro also said the deficit path for the autonomous communities would be relaxed in 2013.
It will however be tightened in 2014 and remain unchanged this year. The European Union has given Spain until 2014 to get its finances in line with EU rules.
"The fund will address specific debt repayments of autonomous regions which can't address them by themselves on an exceptional basis and the regions which use the fund will have to meet new conditions to clean up (their deficit)," Montoro said at a news conference in Madrid.
"It will have the state guarantee," he added, although he refused to give any additional detail before the mechanism is discussed and agreed on Friday at a weekly cabinet meeting.
The big debts of the regions and ailing banks - which will receive a lifeline of up to 100 billion euros from the EU - have pushed Spain closer to seeking a bailout for the state.
The regions are currently shut out of international financial markets and have long asked the state to help them meet 15 billion euros of debt repayments by year-end and ease their liquidity situation.
The central government had however until now delayed creating such a the mechanism because it feared it could affect its own rating, which is already on the verge of junk territory.
Montoro said the state lifeline would not be a free lunch for the regions which need it.
They will have to announce further deficit-cutting measures, strictly comply with their targets and fall under increased scrutiny from the central government.
A group of regions, whose current budget plans will not enable them to meet their deficit objectives, could even see their finances being taken over by the state if they repeatedly fail to adopt corrective measures.
Montoro declined to say how many regions would have to review their plans but sources in the regional governments said eight may be affected.
"There is a process of seven days. During these seven days we will analyse how close they are to meeting their objectives ... and in the case that we can't find an agreement the ministry would send them a warning," Montoro said.
The ministry set a new deficit objective of 0.7 percent of gross domestic product for the regions in 2013 from 0.5 percent previously. It however kept unchanged the target of 1.5 percent for this year and tightened it to 0.1 percent in 2014 from 0.3 percent earlier.