The Catalonia budget deficit was twice as big as anybody feared as reported by the Wall Street Journal article, “Spain Vote Threatens To Uncover Debt”. The socialists were covering up the debt. Rumors say that other local governments all over Spain were trying for years to persuade suppliers to do business off the books and not immediately bill for services. That fact alone could add tens of billions of euros to the official debt figures.
The central government in Madrid has cut its spending so that its debt is now only 9.3% of GDP instead of 11%. But this has had no effect on the practices of Spain’s local and regional governments. And up until now Germany has considered only the national figures.
Since 2003 the local governments of Spain have doubled unpaid invoices. This low payback rate is making economic growth stall out. Suppliers don’t get paid. They can’t afford to hire. They lay off employees. Lately even the trash doesn’t get picked up. In many places it sits in the streets.
This is not a situation that Germany will be able to deal with as readily as it can deal with the Greek Debt Crisis. The Spanish economy is much bigger. It would tax Germany’s resources to bail out its southern neighbor. But still it must do something, or the Euro Zone will unravel.