MORE THAN three years into Europe’s financial and economic crisis, the Spanish town of Parla has run out of cash and credit.

“In the past four years we have lost 25 per cent of our income,” said José María Fraile, the town’s mayor. “At the moment there’s no liquidity . . . The [credit] window has closed.”

Mr Fraile is negotiating with trade unions to fire 190 people, a quarter of the city’s workforce, as a way to save money.

One private company responsible for sports facilities has obtained a court order to sequester municipal assets to cover millions of euro of unpaid debts. Valoriza, another company, is owed €80 million for years of rubbish collection and cleaning.

Parla, with a population of some 130,000, is far from the only Spanish town with financial problems. Spanish banks, which freely financed property developers and municipal governments during the housing and infrastructure investment mania that gripped the country before 2007, are turning off the taps. The central government and autonomous regions are desperate to cut the public-sector deficit to avert the risk of defaults.

Meanwhile, town hall budgets have been squeezed by the collapse of income from taxes on property and construction permits, leaving some of Spain’s 8,000 municipalities unable to pay their workers’ wages on time or meet their electricity bills.

Parla’s public finances are in a particular mess. “If the municipality was a company, it would be in liquidation,” said Miguel Angel López, a city councillor and local leader of the rightwing opposition Popular Party.

Mr López was scathing about what he saw as the irresponsible policies of the Socialist-led town hall during the past decade.

Parla, he said, had €300 million of debt. – (Copyright The Financial Times Limited 2011)