The Catalan and Spanish Governments disagree again over the 1.45 billion euros in the Competitiveness Fund
The Catalan Government received 3.2 billion euros last week from retail bonds, 0.5 billion euros more than the initial quantity released on the market. In addition, it will have to issue more debt and it needs the agreed money transfers from the Spanish Government. However, the Spanish Deputy Minister for Finance has rejected the request from the Catalan Government of 1.45 billion euros from the Competitiveness Fund and has warned Catalonia not to include that amount in this year’s budget. The Spokesperson for the Catalan Government accuses the Spanish Government of “acting as a defaulter”.
Barcelona (ACN).- Tension is raised again between the Spanish and the Catalan Governments. On Tuesday, the day before the Spanish Government and the Autonomous Community Governments meet to approve important steps being taken for the 2011 financial road map, the Spanish Deputy Minister for Finance, Carlos Ocaña, rejected the figure requested by the Catalan Government on the money it believes is owed from the 2011 Competitiveness Fund. Ocaña also warned the Catalan Government of not including any money from the Competitiveness Fund in its budget for 2011, as “it will not be paid this year”, he said. However, Barcelona disagrees and thinks it is legally entitled to the 1.45 billion euros from the 2011 Competitiveness Fund and it should be paid this year. This also comes with Spanish Government pressure to reduce the Catalan public deficit. Replying to Ocaña, the Spokesperson for the Catalan Government, Francesc Homs, raised the tone. Homs accused the Spanish Government of “acting as a defaulter”. “Someone who firstly disagrees on the amount of money owed and secondly tells you it won’t pay when it has to do so is a delinquent debtor”, he added. In addition, Homs described the talks with the Spanish Government on this issue as “talking to a wall”. This disagreement has been ongoing for several weeks. Meanwhile, the Catalan Government has made some progress in easing its financial situation. Last Thursday it closed the sale of 3.2 billion euros from its debt through retail bonds offered to private citizens. The final quantity of the operation is 500 million euros higher than the initial offer of 2.7 billion euros.
Both Governments need to reduce their deficit this year and face a lack of liquidity and pressure from the financial markets. However, the Catalan Government depends on the money transfers and authorisations from Madrid to issue new debt. The Spanish Government directly raises most of the taxes Catalan citizens pay, redistributes the money among territories, and thus funds the Catalan Government. The problem is that the redistribution criteria is not transparent and change according to the desire of the Spanish Government’s needs and political colour. In addition, Catalonia suffers from an historical and legally recognised financial deficit, which means that it has given much more money to the rest of Spain than the money it gets from Madrid. However, there is a disagreement on the fiscal deficit amount. Spanish Government studies have put the figure at between 6.2% and 8.9%. Catalan Government studies have it at between 9% and 12%. Independent studies in Catalonia have even reached figures of 13% and 14%. If we take an annual 9% fiscal deficit, it means that Catalonia gives 18 billion euros more than what it receives each year to the rest of Spain.
The Catalan Government is used to asking for money from the Spanish Government. However, the current difficulties due to the economic slowdown have forced the Catalan Government to drastically reduce its deficit, which reached 3.86% of Catalonia’s GDP in 2010. This figure contrasts with the 9% public deficit Catalonia suffers from each year. Before this situation, the Spanish Government pushed Barcelona to drastically reduce its deficit by either reducing public expenditure or by increasing the limited taxation levels the Catalan Government controls. The Catalan Government presented a stability and austerity plan which reduces public expenditure by 10%, but it refuses to raise taxes. Furthermore, Barcelona asks the Spanish Government for the revenues to which it is legally-entitled, such as the money from the Competitiveness Fund for 2011, a quantity fixed by the Catalan Government at 1.45 billion euros. Madrid disagrees on the amount, it says to be lower but refuses to give an exact figure. It also argues that it will pay the money not in 2011 but in 2013. Finally, it warns Catalonia of not counting this money as a pending transfer or any other accountant formula in the 2011 Catalan budget. It seems the patience of the Catalan Government is reaching its limit.
The Spanish Government has put pressure on Wednesday’s crucial meeting
Tuesday’s disagreement between Homs and Ocaña forced an explanation from the Spanish Ministry of Finance. They said that the money from the Competitiveness Fund will not be discussed at Wednesday’s meeting between the Spanish Government and the Autonomous Community Governments. This meeting is called the Fiscal and Financial Policy Council (FFPC) and brings together the Spanish Government with all the Autonomous Communities but two, the Basque Country and Navarra, which have a different funding model, a special economic agreement through which they raise all their own taxes and then give an annual amount of money to the Spanish Government.
The Catalan Government is determined to discuss its issues at Wednesday’s FFPC as it has to approve its stability and austerity plan. However, this plan includes the 1.45 billion from the Competitiveness Fund and now the Spanish Government refuses to talk about it. This is a last way of putting pressure on the Catalan Government, as the latter really needs its stability and austerity plan to be approved in order to calm the markets and also to get the Spanish Government’s authorisation to issue new long-term debt. In 2011, the Spanish Government has only authorised the Catalan Government to issue a limited amount of 1,866 million euros.
The demand for Catalan bonds exceeded the offer and 3.2 billion euros were sold
The operation to get liquidity from selling retail bonds of the Catalan public debt has been a success. The operation was launched on April 11th and it was closed 10 days later, on Thursday 21st. Initially, the Catalan Government had put 2.7 billion on the market, but considering the positive response from citizens, the amount was increased up to 3.2 billion euros. In total, 131,893 applications to buy bonds were received, equivalent to an amount of 3.41 billion euros, which is 26% more than the initial objective.
There were two types of bonds: short and long-term ones. From the initial 2.7 billion euros, 1.9 billion euros corresponded to one-year term bonds (considered short-term) and 0.8 to two-year term ones (considered long-term). In the end, considering the high levels of demand, the Catalan Government decided to increase the quantity of bonds. Finally, 2.24 billion euros of short-term bonds were sold and the sale stopped on Thursday 21st. The long-term bond sales closed three days earlier, on Monday 18th, and 0.96 billion euros were sold.