Spain OK's Cities to take 'Bankruptcy Loans'

The government in Spain has reopened the credit flow to the country's cities, some of which are on the verge of bankruptcy, mthe Spanish press reported earlier today.

Spain's economy - which is recovering from its worst recession in decades - now had a "small margin" allowing municipalities to contract debts again, Economy Minister Elena Salgado said.

In May, the government prohibited cities, towns or villages from taking new loans in 2011 and 2012.

Spanish municipalities have a debt load of about 36 billion euros (46 billion dollars). The capital Madrid alone has debts of more than 7 billion euros.

Prime Minister Jose Luis Rodriguez Zapatero's government is trying to cut Spain's budget deficit from 11.2 per cent to below the European Union limit of 3 per cent of gross domestic product (GDP).

However, the debt ban worsened the difficulties of cities which had been hit hard by the collapse of Spain's construction sector.

Some cities have been unable to pay for garbage collecting and other basic services in time, prompting companies providing the services to threaten to cut them off.

The government now allows municipalities to take loans again, but only on financial conditions which will limit the measure to 34 of Spain's 50 provincial capitals, according to a figure quoted by the daily El Pais.

Madrid, for instance, will not be allowed to take more debt. The capital "cannot make more investments, if it cannot finance them," Salgado said.