Spain's town hall meltdown

If Carmen Martinez Gomez, a nurse, wants to see the effects of the dramatic spending cuts Spain is currently enduring, all she has to do is glance down from her seventh-floor balcony at the building work below on the Metro, Granada's first underground line.

It is less than 10 miles long, but the Metro has already been five years in the making. And with its workers unpaid since January, its inauguration has just been put back again, reports said last week, until 2013. "It feels as if it's never going to be finished," Ms Martinez says. "The whole of Camino de Ronda" – three miles long and one of Granada's main arterial streets – "looks as if a bomb hit it. Shops are going out of business because there's virtually no through traffic, and for the elderly and disabled it's very difficult to cross the road. The project has split the city in two."

The reason for the interminable delays in Granada's Metro is simple: no money – and it's a grimly familiar story. As early as this summer, Pedro Arahuete, mayor of Segovia and president of the country's federation of municipalities, said that 40 per cent of Spain's town halls or ayuntamientos were in severe economic difficulties, or, as he graphically put it, being "financially strangled". And all across Spain, ayuntamientos and regional councils such as Andalusia's Junta, which is financing the Granada Metro's construction, are in the process of making massive cuts, with about €5bn due to be pruned from budgets across Spain in 2012's last quarter alone.

But with a total town hall debt government figures show to be nearly eight times that amount – €37bn – the cuts are far from being the last notch set to be tightened on Spain's collective belt. They are largely designed to bring a public deficit into line with EU ceilings of 3 per cent of GDP in 2013 at a painfully fast pace. The most dramatic steps to try to balance the books are being taken in the village of Cacabelos in Castile. With his village facing debts of €1m, the mayor's brainwave was to bet the annual budget on the national lottery. Their number did not come up.

In the southern city of Jerez, with debts of €957m, local police now use cars impounded from convicted drug dealers. However, at least that is one step up on their colleagues in the Murcian town of Moratalla, who are now forced to carry out their patrols on foot after they ran up a debt of €120,000 in petrol at the local garages. Further south in Coin, meanwhile, the street lighting now works only intermittently because of an outstanding debt of €240,000 to electricity company Endesa. Even in Catalonia, one of Spain's richest regions, there are near-bankrupt towns such as Moia, where in August the debt reached €25m or 400 per cent of its annual budget. The town's mayor warned that it could no longer afford to bury the dead.

All this is nothing in comparison, though, with the village of Peleas de Abajo in western Spain, whose villagers – faced with a debt of €18,400 per inhabitant – will take a mere 500 years to pay it off. The municipal properties are now reduced to just one building, the town hall itself, and one employee.

The ayuntamientos are far from being the only Spanish institutions up to their necks in debt. In the region of Castile-La Mancha, for example, its health service, Sescam, admits it has no fewer than 159,000 separate unpaid bills. As a result, women there can no longer have abortions because the private clinics Sescam uses, at a rate of 1,000 terminations a month, have not been paid since last December.

While Castile-La Mancha is now cutting its public spending by a whopping 20 per cent, the central government has led by example. The Prime Minister, Jose Luis Rodriguez Zapatero, has already cut civil servants' wages by 5 per cent and government ministers' salaries by 15 per cent, frozen pensions for year, and ended the €2,500 "baby cheque" given to each family with a newborn.

Last month, with a general election looming, Mr Zapatero took things even further. In the first big change to Spain's constitution since 1978, he pushed through a constitutional budget cap for deficits – a policy his Socialist Party had previously criticised.

Yet the roots of the problem stretch seemingly beyond the control of any single government. Across Spain, before the economic recession started in 2009, what felt like an endless series of credits allowed town halls to spend way beyond their means. Take Granada's Metro. Building work began in 2007, and by May this year, 73 per cent had been constructed. But since then, only 1 per cent more has been built – and three local town halls, including Granada, have said they are not paying a cent more to fund it.

It is hard to find a Spanish city, in fact, without its own particular white-elephant project from the boom years. In Aviles in the north, the €44m Niemeyer arts centre which had been compared to the Guggenheim museum in Bilbao has closed after six months. In Tardienta, Aragon (population approximately 1,000), the gleaming high-speed train station is used by 22 passengers a day. In Huesca in the Pyrenees, a new €40m airport has received four commercial flights in three months of service. In Castellon, close to Valencia, a €150m airport was opened in March, but its first flights will not be until at least April next year.

Sebastian Martinez, a town councillor in Linares, a medium-sized Andalusian city with one in four adults out of work after a car factory shut its doors, said: "You can't help wondering how far this will go before there's some kind of major social fracturing."

If this does happen, then a completion date for the Metro in Granada will probably be the least of Spain's worries.