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Catalan Government warns about "extreme" liquidity situation and accuses Spanish Executive of financial "asphyxia"

The Catalan Government has sent another warning message about its lack of liquidity, which depends on the Spanish Executive’s regular transfers since most taxes are collected by Madrid-based services. The Catalan Minister for the Presidency, Francesc Homs, accused the Spanish Government of "deliberate asphyxia" and asked the rest of the Catalan parties to "pool together" to denounce the situation. According to Homs, such financial asphyxia will affect everything except salaries. All Catalan Government departments will be affected and their payments to service providers will be delayed. The Catalan Finance Minister, Andreu Mas-Colell, already warned about this financial asphyxia on previous occasions. In the coming days, Mas-Colell will meet with the rest of the parties to discuss the situation. However, the Spanish Finance Ministry rejects the accusation and has stated that it has made all the pending transfers.

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27 May 2015 01:03 AM

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ACN

Barcelona (ACN).- The Catalan Government has sent another warning message about its lack of liquidity, which depends on the Spanish Executive’s regular transfers since most of taxes are collected by Madrid-based services. The Spokesperson for the Catalan Executive and Minister for the Presidency, Francesc Homs, accused the Spanish Government of "deliberate asphyxia" and asked the rest of the Catalan parties to "pool together" to denounce the situation. According to Homs, such financial asphyxia will affect everything except salaries, which "are guaranteed". All Catalan Government departments will be affected and their payments to service providers will be delayed. The Catalan Finance Minister, Andreu Mas-Colell, already warned about this "financial asphyxia" on previous occasions over the last two years. In the coming days, Mas-Colell will meet with the rest of the parties to discuss the situation. However, the Spanish Finance Ministry rejects the accusation and has stated that it has made all the pending transfers.


This situation started to occur when the Catalan Government began to support the self-determination process and the Spanish Government was fostering its recentralisation agenda. On top of this, it happens in the context of a high fiscal deficit suffered by Catalan taxpayers, since around 45% of their taxes are spent outside of Catalonia, according to calculations by the Catalan Government.

In fact, several studies – from independent university professors, the Catalan Government and the Spanish Finance Ministry – have recognised that between 6.4% and 9% of Catalonia's GDP goes each year to fund public services and infrastructure in the rest of Spain. This fiscal deficit means the basic public services in Catalonia, which are funded and managed by the Catalan Government, are underfunded and that essential infrastructure is not built or is delayed by years, damaging both families in need and the Catalan economy's competitiveness. This perpetual and imposed fiscal deficit is the equivalent to an annual amount of between €13 billion and €18 billion, while the Catalan Government's deficit in 2014 reached about €5 billion.

Besides, the current inter-territorial fiscal scheme that funds the Autonomous Community governments, such as the Catalan Executive, was designed before the 2008 financial crisis. The Autonomous Communities directly manage around a third of Spain's overall public spending and exclusively fund and manage essential areas such as education, healthcare and social services. Not only was the current scheme not revised in line with the economic crisis that caused public resources to plummet, it has also been extended for the last year-and-a-half, despite its legal revision being due by the 1st of January 2014. The Catalan Government has been asking since 2012 to fully review the scheme but the Spanish Finance Ministry has been rejecting this.

In addition, the Spanish Government banned the Autonomous Communities' access to international financial markets and imposed strict control on their capacities to generate debt. It also created a loan mechanism to provide the Autonomous Communities with funds: the Liquidity Fund for the Autonomous Communities (FLA). Thus, the Spanish Finance Ministry became the only bank the Catalan Government could turn toward to ask for funds. Through this system, instead of reviewing the inter-territorial funding scheme and increasing the transfers from Catalan taxpayers' money, the Spanish Government has been issuing loans to the Catalan Government, which it will later be obliged to return. The Spanish Government has been presenting the FLA money, from which Catalonia is the main beneficiary, as great financial help, while in fact it is an instrument to reduce the Autonomous Communities' financial capacities and recentralise powers.

On top of this, the Spanish Government is imposing strict deficit targets on the Autonomous Community governments in order to reduce the overall public deficit. The problem here is that the deficit targets are proportionally much stricter for the Autonomous Communities than for Spanish Government services. The main budget reduction and austerity measures of the past 3 years have been implemented by the Autonomous Communities, while the austerity efforts carried out by the Spanish Government were smaller. Therefore, the Autonomous Communities have reduced their overall spending and services, while the Spanish Government was taking care of some of them.

"Deliberate asphyxia"

The Catalan Government has denounced this strategy, which is combined with delays in the payment of the transfers. This creates "extreme" cash problems in the Catalan Finance Ministry, since it totally lacks liquidity. Instead of having money for many months or access to bank credits, the Catalan Finance Ministry is totally dependent on the money that each month is sent from Madrid to make specific payments (on a very few occasions the money has been sent for 2 or 3 months’ payments, but not for periods any longer than that).

The Catalan Minister for the Presidency defined this situation as "deliberate asphyxia". According to Francesc Homs, the Catalan Government is also facing "two-sided pressure" provoked, on one hand, by the Spanish Government and, on the other, by "those who criticise the Catalan Government for not paying the contracted obligations on time". "This two-sided pressure is diabolical because it totally presents the people who are not guilty, and I don't say this as a government Cabinet now but as the institution, the Catalan Government, [as those responsible for] a situation that should not occur because there is enough capacity in our country to avoid this situation we are suffering", he added, referring to Catalonia's abovementioned fiscal deficit.

Homs called for the rest of the Catalan parties "to pool together" and denounce this situation instead of being "acolytes" of the Spanish Government since they criticise the Catalan Executive for delaying payments, but do not explain the "financial asphyxia". In fact, Homs stated that very often they find greater levels of understanding among the affected sectors and services providers than among many Catalan parties. "A shared answer is needed" because the situation is "extreme", "deliberate" and "totally unjustifiable".

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  • Francesc Homs at a press conference (by P. Mateos)

  • Francesc Homs at a press conference (by P. Mateos)
Catalan Government warns about extreme liquidity situation and accuses Rajoy of financial asphyxia