Sun Aug 21st, 2011 at 06:42:31 AM EST
ElPais.com in English: Regions' unpaid bills reach the 50-billion-euro mark (14/08/2011)
The total sum of bills unpaid by regional and local governments has hit the 50-billion-euro mark, five percent of GDP and four times more than two years ago, according to EL PAÍS' calculations.
The non-payments most affect construction companies working on public projects - which are owed a collective 15.05 billion euros, according to industry employers' organization Seopan - and freelancers - 14.983 billion - as well as the pharmaceutical, waste collection and cleaning industries, 5.450 billion and four billion and one billion, respectively.
Municipal administrations are those that delay the longest in handing out the checks, according to all the business leaders consulted by this newspaper. They take an average of 238 days to pay construction companies, for instance, more than three times what it takes a company to repay its loans to a bank (75 days), according to the Platform against Late Payments. Central government takes an average of 140 days to pay and the regions 155 days, says Seopan.
The Spanish version of this item started with the following shocker:
La escena se vivió el 19 de julio en la Consejería de Sanidad de una autonomía con gobierno del PP. "La caja está vacía, no hay dinero. Si queréis cobrar, acudid a los tribunales". La recomendación del número dos de un consejero a un grupo de proveedores no es un caso aislado.
The scene took place on 19 july at the Health Department of a PP-led regional government. "The till is empty, there's no cash. If you want to get paid, go to the courts". Le recommendation by the second-in-command of the Health Secretary to a group of providers is not an isolated case
Leaving aside ElPais' politically tendentious highlighting of the fact that it happened now under a newly elected PP government, the situation is dire enough to have resulted in a lockdown of pharmacies in Castilla La Mancha, because the Health Department doesn't pay the bills when patients fill their public health system prescriptions.
For scale, 50 billion euros is Moody's estimates of the amount needed to recapitalize the Spanish banking system, and what the Spanish government intends to save in 3 years with its austerity plan.
At the top, ElPais stated that 50 billion is 5% of the yearly GDP. Spain has about 60% public debt-to-GDP, so 5% is about twice Spain's interest payments (I don't know whether the 60% includes the debt of local and regional governments, but that should not be more than maybe 10-15% of GDP so the calculation doesn't change much).
A government telling its providers to "go to the courts if you want to get paid" is basically a default. Since Spain (or its regional or local governments) are not defaulting on their bonds, this is a selective sovereign default.
A sovereign nation enters "selective default" when it elects to delay repayment of some of its financial obligations while fully honoring others.
The idea is that eventually everyone gets paid somehow. It's just in a manner different than how it's set up now.