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Catalonia requests €9.46 billion in loans from Spanish Government’s Liquidity Fund for 2015

The Catalan Government has formally requested €9.46 billion in loans from the Liquidity Fund for the Autonomous Communities (FLA), run by the Spanish Finance Ministry, to face debt payments and other obligations during 2015. This is the only way that the Spanish Government authorises the Catalan Executive to request liquidity as it has banned Catalonia’s access to financial markets to obtain additional funds, as many governments do when they issue bonds or ask for loans. Therefore, the FLA has become the Catalan Executive’s only bank and a source of funds that must be returned. However, for the first time this year, the Spanish Government will not make money on the FLA and has set a 0% interest rate, which will have a €300 million positive impact on the Catalan Executive’s budget.

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20 January 2015 11:53 PM

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ACN

Barcelona (ACN).- The Catalan Government has formally requested €9.46 billion in loans from the Liquidity Fund for the Autonomous Communities (FLA), run by the Spanish Finance Ministry, to face debt payments and other obligations during 2015. On Tuesday, the Catalan Finance Ministry confirmed the amount, which will come with a 0% interest rate following the decision announced by the Spanish Finance Minister, Cristóbal Montoro, in December. Up until now, the Spanish Government was making money on the FLA loans, but in December Montoro announced they will no longer charge interests in order to help the Autonomous Community governments. The 0% rate will mean that the Catalan Government will not have to pay €525 million in interest this year to the Spanish Executive. However, since there are still interest rates from previous amounts pending to be paid, the Catalan Government’s budget will ultimately have €300 million additional revenue due to the 0% rate. In addition, the Catalan Finance Ministry has insisted on the need to continue negotiating with Montoro’s department in order to get the Spanish Government to pay €2.3 billion of pending debts that would bring additional revenue to the Catalan budget during 2015.


Regional executives – including Catalonia’s – are exclusively managing and funding the Welfare State’s basic services throughout Spain, such as healthcare, education and social care systems. After 8 years of economic crisis, these public services are under-budgeted and so are the Autonomous Communities’ governments, if they have not given up powers to the Spanish Executive. Instead of changing the current inter-territorial funding scheme, which legally expired in January 2014, the Spanish Government is using this system of loans, which increases the Autonomous Communities’ debts and recentralises powers.

The FLA is the only way that the Spanish Government authorises the Catalan Executive to request liquidity. The Spanish Government banned Catalonia from accessing financial markets in order to obtain additional funds, as many governments do when they issue bonds or ask for loans. Therefore, the FLA has become the Catalan Executive’s only bank and source for additional funds, which will have to be returned later on. Since 2012, the Spanish Government has earned €946 million in interest rates paid by the Catalan Government for FLA loans. The FLA is thus different from the regular sources of funds, which are part of the Catalan Government’s regular funding system: the limited taxes and fees, the occasional privatisations of assets and services, and the regular revenue brought in by the inter-territorial funding scheme – managed by the Spanish Government in a non-transparent way.

€4.06 billion will be to pay back international banks for previous loans

The Catalan Government has requested €9.46 billion to pay a series of debts and obligations. €1.44 billion will be to pay the authorised 0.7% deficit in the 2015 budget. €4.06 billion will be to pay back international banks loans and bonds previously requested or sold. Furthermore, €624 million will be to pay back the Spanish Finance Ministry several loans given since 2012, mainly official credits and loans from the Service Provider Fund. €2.32 billion will be to make payments to Spanish financial entities. It is the first time that the FLA has included this category among the possible uses of its loans. €308 million will be to fund the Catalan Government’s debts to local governments for social care programmes, which is another new category, known as ‘Social FLA’. €578 million will be to pay deficit deviations until 2013 and the remaining €125 million will be to pay back negative liquidations of the regular inter-territorial funding scheme.

The 0% interest rate measure was approved last December for loans from 2015. It will be in place until a new funding scheme for the Autonomous Communities is approved, despite the current one having legally expired on 1 January, 2014. Two months ago, Montoro ruled out the possibility of approving a new funding system in the coming months and said that a new one will start to be negotiated in early 2016. In this way, the Spanish Government will be condemning the Autonomous Communities to continue to increase their amount of debt in the coming months, instead of honouring the current legislation and approving a new funding scheme adapted to the effects of the economic crisis.

The Spanish Government is recentralising powers and increasing Catalonia’s debt

With a new funding scheme, the Autonomous Communities should receive a greater share of public revenue, more in line with their spending responsibilities and managing of basic public services. However, with the Spanish Government’s system, instead of being funded in their own right at zero cost, the Autonomous Communities are obliged to ask for loans, which later they will be obliged to return with associated interests (which might be cancelled in 2015, as announced today). So far, the Catalan Government has received €25.49 billion from the FLA since 2012, the equivalent of some €8.5 billion per year on average. This mechanism has resulted in significantly increasing Catalonia’s public debt. By not modifying the funding scheme, the Spanish Government obliges Catalonia to ask for loans and increase its debt, while powers are being recentralised.

The current inter-territorial fiscal scheme was conceived just before the economic crisis and was supposed to be renegotiated during 2013, in order to have a new one by 1 January, 2014. However, back then, Montoro said there would not be a great enough consensus because of a lack of public resources due to the economic crisis and ruled out the possibility of changing the model, despite the fact that it would expire. However, it was precisely the effects of the economic crisis which were making the current system unsustainable as it was under-budgeting the regional governments, which are exclusively managing and funding the main Welfare State policies, such as healthcare, education and social affairs. As well as this, the Catalan Government exclusively manages prisons, policing (with the exception of border control, anti-terrorism and international crime), judicial offices, agricultural policies, employment promotion and cultural policies, among others.

Catalan taxpayers are obliged to give away 8.1% of Catalonia’s GDP each year 

In addition, the Catalan Government is significantly under-budgeted in comparison with other Autonomous Communities in Spain, since 43% of taxes paid by Catalan citizens are spent outside Catalonia following the Spanish Government’s non-transparent fiscal redistribution scheme. The Spanish Government raises the majority of taxes and partially funds the Autonomous Communities, which have quite limited fiscal capacities. In fact, according to the most comprehensive study on the issue, compiled by the Catalan Government, Catalans have been giving away an average of 8.1% of Catalonia’s GDP each year for at least the last 26 years, an amount that is equivalent to giving away on an annual basis some €16.5 billion (in today’s money). The Catalan Government’s entire spending for 2015 will amount to some €22.5 billion and 71% of it will go towards paying for the public healthcare system, schooling and university education, and social protection. This excess of imposed solidarity with poorer regions makes Catalonia have less public money per inhabitant than poorer regions throughout Spain, resulting in worse public services and long delays in building basic infrastructure. In particular, this excessive fiscal deficit affects Catalonia’s working and middle classes, those in need, and the entire economy, damaging competitiveness as it does.

The only study by the Spanish Government, published in 2008 with data from 2005 only, showed that Catalonia transferred between 6.4% and 8.7% of its GDP (depending on the calculation formula) to the rest of Spain each year. This means a transfer of between €13 billion and €17.5 billion in a single year. Around 75% of Catalan society wants to change this situation and reduce these fiscal transfers, while keeping certain degrees of inter-territorial solidarity with poorer regions. In fact, the Catalan Government proposed a new Fiscal Agreement between Catalonia and the Spanish Executive in mid 2012, which would halve the Catalan taxpayers’ contributions, ensuring the correct funding of public services in Catalonia and funds for poorer regions. The Spanish Government rejected even talking about this and firmly closed the door on any possible negotiations.

Catalonia has reduced 15% of Spain’s total deficit, despite only managing 5.5% of total public money

Furthermore, a few weeks ago, Mas-Colell emphasised the fact that the Catalan Government has undertaken the most important budget adjustment in Spain since 2010, Catalonia had a €9.1 billion deficit in 2010 representing 4.53% of its GDP and in 2015 it will post a €1.44 billion deficit, representing a 0.7% deficit. This represents a deficit reduction of 84.2%, equivalent to €7.66 billion. Moreover, if the payment of financial interests were to be left out of the equation, Catalonia would actually post a €273 million budget surplus for 2015, representing a 0.13% surplus in relation to its GDP. In 2010, such a deficit without financial interests reached €8.18 billion, the equivalent of 4.08% of Catalonia’s GDP. Therefore, in 5 years, the Catalan Government will have reduced structural deficit by 103%, transforming it into a €273 million budget surplus.

In addition, the Catalan Government has been directly responsible for 15.12% of Spain's total deficit reduction since 2010, despite it only managing 5.49% of the country's public money. The Spanish Government reduced its spending per capita by €113 between 2010 and 2013, while the Catalan Executive reduced it by €694 in the same period. In fact, the Catalan Government’s spending decreased by €5.24 billion in that period while that of the entire Spanish Government only decreased by €5.28 billion. The Spanish Government is responsible for more than 50% of Spain’s total public spending, despite it not implementing the basic Welfare State policies, with the exception of pensions and unemployment benefits.

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  • The Spanish Finance Minister, Cristóbal Montoro, a few weeks ago at the Spanish Parliament (by ACN)