More than 100 US cities could go bust next year as the debt crisis that has taken down banks and countries threatens an urban catastrophe, a leading analyst has warned.
Meredith Whitney, the US research analyst who correctly predicted the global credit crunch, described local and state debt as the biggest problem facing the US economy, and one that could derail its recovery. “Next to housing, this is the single most important issue in the US — and certainly the biggest threat to the US economy,” Whitney told the CBS 60 Minutes programme on Sunday.
“You will see a spate of municipal bond defaults... 50 to a 100 sizeable defaults, more,” she said.
New Jersey’s governor, Chris Christie, summarised the problem: “We spent too much on everything. We spent money we didn’t have. We’ve been digging it for a decade or more. We’ve got to climb out now, and a climb is harder.”
American cities and states have debts totalling up to $2trillion (R90.4 lakh crore). In Europe, local and regional government borrowing is expected to peak at nearly €1.3 trillion (R77.4 lakh crore) this year.
Cities from Detroit to Madrid are struggling to pay even providers of basic services such as street cleaning. Last week, Moody’s ratings agency warned about a possible downgrade for Florence and Barcelona and cut the rating of the Basque country in northern Spain. Lisbon was downgraded by Standard & Poor’s earlier this year; Naples and Budapest are on the brink of junk status.
US states have spent nearly $500bn more than they have collected in taxes, and face a $1 trillion hole in their pension funds, said the CBS programme, The Day of Reckoning.
Detroit is cutting police, lighting, road repairs and cleaning services. California has raised state university tuition fees by 32%. Arizona has sold its state capitol and supreme court to investors, and leases them back.
In Europe, Venice has been forced over the past few months to put some of the palazzi on its canals up for sale to fund the deficit.
“Cities are on their own. Governments won't come to their rescue as they have problems of their own," said Andres Rodriguez-Pose, professor of economic geography at the London School of Economics.