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Spain paying the price of regional overspending

Spain's regional authorities have been racking up large deficits through heavy social spending and construction. As a result, Spain will probably miss its deficit-reduction target this year.

November 10, 2011|By Henry Chu and Guy Hedgecoe, Los Angeles Times

Initially, only discount airline Ryanair used the airport, but it eventually abandoned the facility. The regional government then agreed to subsidize three flights a week by another low-cost carrier, Vueling, but it, too, has decided to pull out.

The airport's future is now uncertain. The main investor in the project, local savings bank Caja Castilla-La Mancha, went bust; it has been absorbed by regional bank Cajastur.

Like other regions, Castilla-La Mancha is responsible for healthcare and education, areas of major spending. But here, too, expenditures have far outpaced revenue, fueling a regional deficit somewhere between 4% and 9%.

"The deficit is a lot bigger than we had been told — and 'a lot' means a lot," said the region's new leader, Maria Dolores de Cospedal, whose conservative Popular Party replaced the Socialists in government in June. (The same changing of the guard is expected in a national election Nov. 20.)

De Cospedal has pledged to cut spending next year by a whopping 20%, including slashing more than half a billion dollars from the healthcare system. Public sector employees are being laid off. Agencies such as the Don Quijote Assn. for the Promotion of Tourism are being axed.

"In the schools, things are really bad. Teachers are working more and earning less," said Gracia Moreno, an elementary school teacher in the city of Ciudad Real. "My wage has been cut by 5% this academic year."

Austerity is now the watchword throughout Europe, despite warning signs that too much of a fiscal pullback can choke off growth. To make matters worse, Spain's national credit rating was downgraded — again — last month.

In Castilla-La Mancha, the mood is grim.

"The atmosphere here is really bad at the moment," Antequera said. "People are very pessimistic. They're resigned to things getting worse, to more cuts coming."

Times staff writer Chu reported from London and special correspondent Hedgecoe from Madrid. Special correspondent Vitor Sorano Pereira in Lisbon contributed to this report.

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