RECANATI, ITALY -- This 12th-century gem, birthplace of the poet Giacomo Leopardi, rests on a lyrical hilltop in the Apennine Mountains. But these days, Recanati is also sitting on something else: a pile of financial trouble.
Concern over near-bankrupt countries forced Greece on Thursday to request a huge international bailout. The plight here, however, underscores fears of a new front in the battle against global debt -- at the state and local level.
Recanati is one of hundreds of municipalities around the world facing a deepening financial crunch from bad investments, plummeting tax revenue, high debt levels and rampant overspending. In the United States, at least six states have budget gaps bigger than Greece's, with Hawaii shifting to a four-day school week to cope. In Spain, a substantial drop in tax revenue from a bust in construction is battering budgets in the cities of Madrid and Valencia, as well as in the provinces of Catalonia and Andalusia, raising the threat that ratings agencies will downgrade their debt.
The picture is particularly bleak in Italy, where many cities and towns invested heavily in complex bets on interest rates. Now deep in the red, Recanati is being forced to sell off parkland, unload a public kindergarten, scale back aid to the elderly and scrap costly repairs on leaking churches and ancient cobblestone streets.
"We are in a financial emergency because of our debts; it has become the sword of Damocles hanging over our heads," said Francesco Fiordomo, Recanati's mayor.
Experts are not yet predicting cascading bankruptcies, but they warn that increasing problems in heavily indebted municipalities and provinces are creating financial time bombs that could lead to defaults.
