Spanish Towns Desperately Hocking Assets

Posted by Brianna Panzica - Monday, August 13th, 2012

When Spain adopted the euro in the 1990s, towns and cities across the nation thrived. There were clean streets, new buildings, and fiestas like never before, and some town residents didn't even have to pay taxes.

But it has all come to a grinding halt...

The nation is deeply in debt, with the Federation of Municipalities and Provinces (FEMP) reporting a debt of $21 billion from local governments.

Madrid, Spain's capital, is $1.2 billion in debt. But that isn't the worst of it.

The most affected town in the nation is tiny Peleas de Abajo, a little village in the northwest province of Zamora with no more than 241 residents.

Peleas de Abajo has the most debt per capita in the nation. It owes $5.6 million, and the town government has said it could take up to 500 years to correct this.

Felix Roncero is the mayor of Peleas de Abajo, though he has only been in office since 2011. For thirty years before him a string of mayors from the same family have passed down the office.

From USA Today:

For years, they spent freely and gave themselves generous salaries, he says. Residents enjoyed lavish town-held fiestas. There were bullfights in portable bullrings and “the best bands in the region, even better than the ones playing in Zamora,” he says.

Peleas de Abajo was not alone in this type of lifestyle. When the euro was introduced, interest rates were very low, and so Spain took to borrowing money.

Construction grew across the country. Spending occurred without a second thought. And now the nation has five million empty homes. Local and national governments are seizing assets from the towns – things purchased in these waves of lavish spending – to help cover the debt.

Towns are watching what once belonged to them disappear as the nation desperatel tries to fix $250 billion in bad loans.

Galende, another northwest town, is in a similar boat to Peleas de Abajo. Its per-capita debt isn't nearly as devastating – $2.8 million for the 1,400-resident town – but it's still changed the town completely.

Mayor Jesus Villasante has been in office for 18 years. In all that time, residents say, he never collected taxes.

He told USA Today:

“Things were going so well so we could afford not to collect sanitation or waste disposal taxes and, some others, like property tax, were still at 1995 levels.”

But however officials try to justify it, it's very clear that the debt incurred by lavish spending, low taxes, and high borrowing could have been avoided with fiscal responsibility. The town of Miajadas, for example, has a budget surplus.

While towns and cities surrounding Miajadas have high debt, the eastern village has $1 million on tap. And yet it's making cuts with the rest of the nation. It's this sort of wise action that likely kept the village afloat in the first place.

Mayor Juan Luis Isidro said:

“We (mayors) want to do things for our towns but we must do it with the money we have, not by borrowing it. It is the only way.”

His message is very apparent in the desperate hocking of town assets in areas like Peleas de Abajo, public service cuts in places like Galende, and austerity measures dictating national spending.

It's a lesson we're taught as individuals aiming to protect our wealth and avoid high personal debt.

And it's a lesson Spain won't soon forget.