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Spain to suspend fiscal rule, freeing $3.6 bln for municipalities

MADRID, Sept 14 (Reuters) - The Spanish government will suspend a fiscal rule that limits the spending ability of municipalities in a move that would free up more than 3 billion euros ($3.56 billion) of expenditure in order to help mitigate the impact of the coronavirus crisis.

The rule “will be suspended for the year 2020”, Budget Minister Maria Jesus Montero told La Sexta TV channel on Monday, adding the government intended to suspend it also for the coming years.

The fiscal rule, which was part of measures agreed with the European Commission in 2012 following the rescue of the country’s financial sector, prevents municipalities from running deficits and limits their ability to spend their budget surpluses in anything but financially sustainable investments.

They will be able to spend an extra 3 billion euros as a result of the suspension to be decreed in the coming weeks, the Budget Ministry said in a statement.

Municipalities in Spain are mostly in charge of social spending such as childcare, school meals and shelters for the homeless.

The Spanish economy, one of the worst-hit by the pandemic and subsequent lockdowns in Europe, posted an 18.5% contraction in April-June from the previous quarter. The government expects a GDP contraction of over 10% this year.

Spain reported 4,708 new coronavirus infections on Friday, bringing its cumulative total to 566,326 -- the highest in western Europe.

$1 = 0.8429 euros Reporting by Belen Carreño and Inti Landauro, editing by Andrei Khalip and Bernadette Baum