Palma.—The former Socialist-led coalition government has left the new centre-right Partido Popular administration with a debt of 4'483 million euros and 1'104 million euros in unpaid bills.

Last night, going public with the true extent of the region's economic situation, President Jose Ramon Bauzá described it as “the most serious in the democratic history of the islands.” However, on Wednesday he was in Madrid for talks with the Finance Minister about central government's plan to reduce the regional deficit with a new set of spending rules.

In order to quash public concern, Bauzá vowed that the “public will not be made to pay for the gross mismanagement of the previous government. The weight will have to be shouldered by the government,” he added.

Swathe of cuts
A swathe of public spending cuts is going to have to be introduced, possibly starting with the health service, but Bauzá stressed that resolving the Balearics' debt will not involve tax hikes, wage cuts for civil servants or co-payment for public health care. In Madrid, it was agreed with the Finance Minister, Elena Salgado, that all 17 of the country's regions, which share a total debt of 121 billion euros, will adhere to the new set of spending rules drawn up by central government.

Bauzá said that the new rules should save the Balearics 380 million euros in the short term and also help the region reduce its public deficit by 1.3 percent of the GDP this year.

Salgado's spending rules are part of her effort to win over investors and stem a surge in borrowing costs and yesterday Bauzá sat down with leading local bankers to explain what the spending rules entail and how they are going to have an important role to play.

Since the recession hit, banks across the country have ignored orders to release cash to help the business sector, however, Bauzá made it clear at yesterday's meeting that unless the banks begin making lines of credit available to the government, his administration will not be able to comply with the spending rules and the “road map” to a healthy financial situation.

Six months
The mechanics of the spending rules, an idea Prime Minister Jose Luis Rodriguez Zapatero first floated in March and proposed again in June, will be decided by a working group in September. The Balearics and the rest of the regions now have a period of six months to present legislation to their respective parliaments.

Spain's regions are crucial to its efforts to rein in the euro area's third-largest budget shortfall, as they control health and education spending and employ half of the nation's public workers.

They have an outstanding debt of 121 billion euros, or 11 percent of overall gross domestic product.
That is the most on record, according to the Bank of Spain.
The Balearics is now committed to meet the deficit targets of 1.3 percent in 2012, 1.1 percent in 2013 and 1 percent in 2014.