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Elections this weekend may reveal piles of "hidden debt" in Spanish regions

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Any change in Spanish regional and local governments after this Sunday's election may reveal more hidden debt.

The "hidden debt" problem first popped up in Catalonia after elections in the fall that resulted in moderate Catalan nationalists unseating a Socialist-led coalition. In December, the central finance ministry said the region's debt-to-regional-GDP ratio was 1.7% as of the third quarter. The old government, in an outgoing report, later disclosed the full-year deficit could be as high as 3.3%.

Sunday's elections, which will be held in 13 of the country's 17 regions and its more than 8,000 municipalities, threaten to be hard on Prime Minister José Luis Rodriguez Zapatero's Socialists.

Spanish Finance Minister Elena Salgado has told journalists there are no "hidden deficits" on the accounts of Spain's regions. Spain lately has steadied—if not dismissed—concerns about its finances by slashing its budget deficit to 9.3% of gross domestic product in 2010 from 11% of GDP in 2009.

But most of the reduction was thanks to central-government cuts. Regional and municipal governments, which piled on debt during the economic boom years that followed Spain's adoption of the euro in 1999, control half of spending in Spain, and have so far made little progress on this front.

‘Hidden’ debt

raises Spain bond fears

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