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European municipal borrowers: Spanish regions' fast track to the markets

In the run-up to the European single currency there were expectations of major political changes that might take place after monetary union leading to more decentralized funding, with local authorities and regions issuing more and sovereigns less. Generally in the eurozone this change has been slow in coming. Spain is a key test case. Any significant increase in debt issuance by local authorities may hinge on political horse-trading between the central government and the "fast-track" autonomous regions.

The countdown has already begun for prime minister José María Aznar, who faces a general election next year. Since leading his centre-right Popular Party to a narrow victory over the socialists four years ago, Aznar has held on to his parliamentary majority thanks to an uneasy coalition struck with the powerful regional parties of Catalonia and the Basque Country. As the political scene begins to heat up this autumn, the two regional governments can be expected to put pressure on Aznar for the transfer of powers now held exclusively by Madrid, in particular the ability to raise their own taxes.

His view is borne out by Xavier Ruíz del Portal, the Catalan government's director-general for finance policy.