Regionalism has been hailed as one of Spain's great success stories, defusing political tensions and nurturing pride in local communities, culture and language. During the past decade, local governments sold land and borrowed money on the strength of Spain's construction boom.
Today, though, the harsher truth is starting to emerge.
"The regions plunged from a happy world in which they built up power and money to a hostile environment dominated by unpaid bills, a debt spiral and lack of income," the financial daily Expansion commented bleakly last week.
The problem began to crystallise last month when the rating agency Moody's placed Spain's credit status on track for a possible downgrade, citing suspicions that regional debt had slipped out of control.
Moody's downgraded six regions - Castilla-La Mancha, Murcia, Valencia, Catalonia, Andalusia and Castilla y Leon - and placed a further seven regional debt ratings on a watchlist.
The Spanish Government has set a deficit target of 1.3 per cent of gross domestic product (GDP) for the 17 regions for 2011 and 2012. But Moody's calculates this would be overshot by as much as half. If so, it would wreck the Government's borrowing target - 6.0 per cent of GDP - which is the cornerstone of efforts to win the markets' confidence.
Moody's move added to investor jitters that Spain, with Italy, could join Greece and Ireland in the list of euro-zone basket economies.
Prime Minister Jose Luis Rodriguez Zapatero postponed his holiday last week to stage crisis talks as Spain's borrowing costs scaled a 14-year high - nudging a threshold of 7 per cent considered by most analysts to be ruinously high.
Zapatero's spin is that Spain has a solid fiscal position, underpinned by a credible austerity programme. But this position could be undermined by what is happening at regional level.
The autonomous governments have debts of €121.4 billion, an increase of more than 26 per cent since the end of 2010, according to the Bank of Spain. Together, regional debt accounts for a whopping 11.4 per cent of Spain's GDP, compared with 10.9 per cent at the end of last year.
The biggest spendthrift of all is Catalonia, accounting for a crippling €34.3 billion of debt, or 28 per cent of the total.
The new government which took office in Barcelona at the start of 2011 discovered that the 2010 deficit was twice as big as previously reported. It blamed lower-than-expected tax revenues as well as millions in unrecorded late payments to suppliers, including nearly a billion euros in unpaid bills to hospitals.
The new Catalonian government has cut the 2011 budget by 10 per cent. But the scare has sparked concerns that other regions are also indulging in dodgy accountancy, such as keeping off their books the borrowings of state-sector utilities.
According to the Spanish press, Valencia - the second-highest region for indebtedness, with €17.8 billion owing - neglected to include €1.3 billion of bills to health suppliers in its 2010 deficit.
Lorenzo Bernaldo de Quiros, head of Madrid consultancy Freemarket Corporate Intelligence, calculates that more than €26 billion in regional debt is being kept secret.
"It is clear,"he warned, "that in some or even many regional governments the official accounts do not reflect the truth."
