The PP or the PSOE will only have CiU’s support if a new regional fiscal redistribution model is agreed, affirms Mas

The President of the Catalan Government Artur Mas announced in Madrid that in 2012, if the People’s Party (PP) or the Socialist Party (PSOE) want CiU’s support to form a new Spanish Government, Catalonia needs more money and greater control over its own finances. Mas made these comments the same day his Government agreed a 400 million euros loan.

CNA / Gaspar Pericay Coll

March 29, 2011 12:09 AM

Madrid (ACN).- The Catalan President Artur Mas told Madrid politicians and businesspeople that Catalonia needs more money and warned that the current fiscal deficit cannot continue at the current high levels. The effects would be that the Catalan Government and the Catalan economy, the main economic engine in Spain, would suffer from asphyxia. Therefore, after the 2012 Spanish general elections, if the People’s Party (PP) or the Spanish Socialist Party (PSOE) want the support of the Centre-Right Catalan Nationalist Coalition, Convergència i Unió (CiU) to form the Spanish Government, a new regional fiscal redistribution model needs to be approved. The new model would be in line with the solidarity principle by which richer regions give money to poorer ones. The problem is therefore not the principle but the amount distributed. Limits are needed, as otherwise the richer regions are weakened by it and in some cases the wealth rank can become inverted. Currently, Catalonia suffers from one of the highest levels of “solidarity” in Europe. As a rich region, Catalonia receives less money from the Spanish State than the revenues it generates. It has a fiscal deficit officially quantified at 9% of its GDP, although other studies put the figure at 12% or even 13%. Being 9% or 13%, Artur Mas judges this be excessive and has demanded a revision of the model. A 9% fiscal deficit represents more than 18,000 million euros (18 billions) each year. The Catalan Ministry for Finance calculated that in 2011, the Catalan Government will need around 11,000 million euros of loans. In fact, the Catalan President was delivering his speech in Madrid the day his Government received a long-term loan for 400 million euros from Banco Santander. The Catalan Government already agreed a short-term loan for 500 million euros from CatalunyaCaixa on March 11th last. These two loans are to reduce the public deficit and to pay for expiring old loans. The opposition parties criticised Mas for talking now about the special economic agreement.

The President of the Catalan Government Artur Mas delivered a speech in Madrid, at Forum Europa, in front of a distinguished audience of businesspeople and politicians. Mas discussed his model in detail in Spain’s capital and explained the main point of his electoral programme: a new regional fiscal redistribution model for Catalonia, similar to the Basque Country and Navarra’s special economic agreements.

The Basque Country and Navarra already benefit from a unique model

In Spain there are 17 Autonomous Communities but 3 fiscal distribution models: one for the Basque Country, one for Navarra, and another one for the 15 other Communities, including Catalonia. These 15 Autonomous Communities share a common model whereby the Spanish State raises taxes and then redistributes the revenue according to the solidarity principle: richer regions receive less than what they give, and poorer regions receive more. Catalan political parties and Catalan society have been denouncing three main issues for decades regarding this model: firstly, the way the Spanish State redistributes revenue is not transparent; secondly, not all the rich Communities contribute to the same degree; and, thirdly, Catalonia does not receive as much as it should, a fact that seriously undermines its economy, which is Spain’s main engine. This third point is known as “fiscal deficit”, from which Catalonia suffers each year. The official figures released by the Spanish Government only once in the entire democratic times, in 2008 and covering only until 2005, put the fiscal deficit at 9% each year. Other studies puts this deficit at 12% or even 13%. A 9% of the Catalan GDP represents around 18,000 million euros. Therefore, Catalonia suffers from a titanic historic lack of investment.

The Basque Country and Navarra have a special and unique economic agreement, as a result of the Spanish democratic transition, which recognised their historical rights. Each one has its own particular model, with its own specific points but the general model is the same. The Autonomous Governments raise all the taxes and then they pay the Spanish Government an agreed sum of money split into two subgroups: firstly, the services and infrastructure the Spanish State provides to citizens of the Basque Country and Navarra, and secondly its solidarity with poorer regions. The Basque Country and Navarra are among the richer regions of Spain. Several studies have put their solidarity levels at between 2% and 3%, far below the 9% to 13% of Catalonia.

“Sometimes we feel like the Germany of Spain”, stated Mas

The Catalan President went to Madrid to explain why his party included a special fiscal agreement for Catalonia on its electoral programme, and most importantly, why it is urgent for Catalonia. “Sometimes we feel like the Germany of Spain”, stated Mas. With this he hoped to stress that Catalonia is Spain’s main economic engine and that it also makes a higher contribution in terms of solidarity, but as in Germany, there is the feeling of paying too much. And as in Germany, many sectors of Catalan society are unhappy with the current situation. This discontent has become especially apparent during times of economic difficulties, when it has dramatic effects on the Catalan economy, its public services and Catalan poorest citizens. Mas emphasised that a fiscal deficit of 9% of Catalan GDP “is not sustainable for ever”.

Artur Mas told the Madrid audience that his party, CiU, and the Government he leads will ask for this special agreement in 2012. They will wait until then because it will take place after the next Spanish general elections. Mas wanted to discuss this new model with the next Spanish Government. According to recent polls, the People’s Party (PP) would win the next elections. However, it is not clear whether the PP would have an absolute majority and thus they would need parliamentary support from other political groups. CiU is currently the third force in the Spanish Parliament and polls indicate that it will continue being so. In addition, CiU has a long history of providing support to the Spanish Government, being ruled by José Maria Aznar (from the PP) or by the Socialist Felipe González or the current PM José Luís Rodríguez Zapatero. For instance, CiU’s votes saved Zapatero’s labour market reform and also its plan to cut public expenditure in May and June 2010. CiU’s votes in that case safeguarded the government’s plans but also helped maintain Zapatero’s Government in power, in a moment when the Euro was severely attacked by financial markets.

With this framework, Mas made his plans clear. If the PP or the PSOE want CiU’s votes in the Spanish Parliament in exchange, CiU and the Government Mas chairs will ask for a new regional fiscal redistribution model for Catalonia. In particular, they will ask for a model similar to those applicable in the Basque Country or Navarra. This will be a condition to receive CiU’s votes, which will be discussed “rationally” and not emotionally, stated Mas.

A 400 million euro loan

Artur Mas was delivering this speech the day that the Catalan Government received a 400 million loan from Banco Santander. The loan is to be returned in four years with an interest rate around 5.5%, much higher than the rate paid by the Spanish Government. The financial giant has once again provided a loan to the Catalan public administration after an absence of more than a year.

The Catalan Government has made use of the permission given by the Spanish Government a month ago to issue new debt for a total amount of 1,866 million euros. This new debt is only used to refinance old debt, therefore the government can pay for expiring old loans, and reduce the public deficit. The Catalan Government presented an austerity and stability plan to cut public expenditure by 10% and to set the 2011 public deficit at 1.3% of Catalan GDP. It is expected that in 2011, the Catalan Government will need over 11,000 million euros (11 billions) in loans.

On March 11th last it agreed a short-term loan (for one year) from CatalunyaCaixa for 500 million euros. Two weeks ago, the Catalan Government attempted to receive between 300 and 500 million euros in loans from the international financial market at a rate of 5.5%, but it was unsuccessful. As of today, the Catalan Government will once again try to receive money from international markets at a much higher interest rate compared to what the Spanish Government pays.

The opposition criticises Mas for talking now about Catalonia’s special economic agreement

The opposition parties represented in the Catalan Parliament criticised Mas for going to Madrid to talk about negotiating a new economic agreement in 2012. The main opposition party, the Catalan Socialist Party (PSC) said that Mas “is running away from his current responsibilities”. The PSC spokesperson Miquel Iceta said that Mas is using the special economic agreement “as a carrot” to entertain his current supporters. The Catalan branch of the PP, the PPC, stated that they are open to discussion but criticised Mas for talking about it now, as it is deemed too early. The PPC believes what Mas “has to do now is govern”. For the Catalan Green Socialist Party (ICV), Mas “is playing with variable balances of Spanish politics” and he is reproducing the dynamic of receiving money through political support. The Left-Wing Catalan Independence Party (ERC) stressed that this issue is a “national issue”, and Mas should not be negotiating this as part of a closed bilateral agreement with the PP or the PSOE. The Populist Anti-Catalan Nationalism Party Ciudadanos (C’s) said that Mas wants this announcement to hide the cuts his Government is undertaking in public expenditure. Finally, the radical and populist Catalan Independence Party (SI) said that it is a mistake “to go to Madrid to be pedagogic” as “Spain has the will to continue its fiscal plundering” of Catalonia.