luis de guindos

Spanish government trims projections by 0.3% and says it will not meet its deficit target

The President of the Catalan Government, Artur Mas, confirmed that Spain and Catalonia are already now in a situation of “open conflict”, after the criminal prosecution launched against him and two other members of his Cabinet. However, Mas asked the Spanish Government to end its “angry” attitude and start negotiating, proposing ways out of the current situation. The Catalan President added that the international community will ask the Spanish Government to sit and talk if the current open conflict finally generates “concerns” at an international level. Mas was addressing an economic forum with the main representatives of Catalonia’s business community. The Spanish Minister for the Economy, Luís de Guindos, was also present and they were in friendly conversation for a little while. De Guindos emphasized that the Spanish Government has issued “bailouts for Catalonia in difficult moments”.

The Spanish Executive has presented a 720-page report in which it proposes 120 measures “to eliminate duplications” and “improve the coordination” between government levels in order to “rationalise” and “increase the efficiency” of the public sector. However, the initiative proposes a true recentralisation of Spain, since almost all the measures point towards transferring powers and services back to the Spanish Government. The Catalan Executive and the non-Spanish-nationalist parties have announced a common front to stop “the pruning” of Catalonia’s self-government. Madrid’s document proposes the direct elimination of several institutions that are defined in the Catalan Statute of Autonomy, approved by citizens through a binding referendum. Furthermore, it cancels pending power devolutions, which had been planned for years but whose effective transfer has been constantly delayed.

On Friday, the Spanish Government approved a proposal of law strengthening market unity, officially aiming to simplify the bureaucratic and legal framework in which companies operate. However, the Catalan Executive fears Madrid’s reform does not really aim to boost the economy and help companies, but to recentralise power. Barcelona thinks that the new proposal “radically modifies” the current distribution of competences on economic regulation and it aims to recentralise power. The Catalan Government hopes that the definitive law will be significantly changed in relation to the current proposal, as otherwise Barcelona will totally oppose the initiative. Catalonia is critical of the current proposal and accuses it of “homogenising the Autonomous Communities”.

On the occasion of the kick-off of the 2013 Barcelona International Motor Show, the Spanish Prime Minister, Mariano Rajoy, and 3 ministers (Finance, Economy and Industry) visited Barcelona on Friday. They held several meetings with the President of the Catalan Government, Artur Mas, and the Catalan Finance Minister, Andreu Mas-Colell. Mas and Rajoy talked for 20 minutes about Catalonia’s deficit target for 2013 and the budget for this year. Officially, they have not discussed the self-determination process. In addition, Mas also met with Luís De Guindos, Spain’s Minister for the Economy. Mas-Colell met with De Guindos and Cristóbal Montoro, the Spanish Finance Minister.

On Monday the Spanish Minister for the Economy, Luís de Guindos, stated that Spain might internally redistribute its total deficit target among the different government levels in order to give more breathing space to the Autonomous Communities, which have been taking on a large part of the budget adjustment. However, the following day, the Spanish Finance Minister, Cristóbal Montoro, ruled out this possibility if Brussels does not give greater flexibility to Spain and increase its total deficit target for 2013. On Wednesday, after the contradictory messages, the Spanish Prime Minister, Mariano Rajoy, confirmed Montoro’s approach. In 2013, Spain has been given a total deficit target of 4.5%: 3.8% is for the Spanish Government (responsible for 50% of public spending) and 0.7% is for the Autonomous Communities (responsible for almost 40%).

The Catalan Government has been insisting on the need to internally redistribute deficit objectives in Spain, splitting them in a fairer way in order to better pair the responsibility of the management of basic services with their share of Spain’s total deficit target. Currently, the Spanish Government is keeping most of the deficit allowed by the European Union for itself, despite the fact that it only represents 50% of Spain’s total public spending, and it has forced regional and local governments to a Draconian budget adjustment. The European Parliament asked EU Member States to internally split deficit targets in a fair way for the benefit of the public services aimed at the citizens. Now, the Spanish Ministry for the Economy, Luis de Guindos, talked about distributing deficit targets “equitably”, in front of the European Commissioner for Monetary Affairs, Olli Rehn.

The Catalan Government stated it will meet the 1.5% deficit target for the Autonomies, although it considers it to be abusive considering they manage the main public services and the Spanish Government has kept for itself all the flexibility allowed by Brussels. In addition, the Catalan Government and the Catalan economy suffer from a perpetual lack of investment by the Spanish Government, which takes away 8.5% of Catalonia’s GDP each year, a quantity much higher than the deficit target. The day after Catalonia’s request for €5 billion from the Liquidity Fund, there was no recognition of Catalonia’s fiscal deficit at a Spanish or European level. There were only calls to continue with the austerity efforts. However, the Catalan Government warns of a “serious problem” if the Liquidity Fund is not in place on time by September.

The Spanish Economy minister said on Monday that the state will “absolutely not” require a full rescue package such as the one taken by Greece, Ireland or Portugal. Speaking at a parliamentary hearing, De Guindos said that the Spanish economy is competitive and has “capacity to grow” unlike other struggling European countries. However, markets seem unconvinced by Luis de Guindo’s remarks, pushing the ten-year Spanish bond yields to more than 7.5%. Doubts about the autonomous communities financing capacity are also affecting the situation, especially after Valencia announced that it will ask for about 3,500 million euros from the Spanish Liquidity Fund. Catalonia, the most indebted community in Spain, is still considering whether to use the money from the fund, and will only decide after studying “the set of conditions” attached to it.

The Spanish Minister for the Economy, Luís de Guindos, wants to speed up the process and have the entire Spanish banking system restructured before the summer. The Spanish Minister also said that he is expecting further concentration processes of other financial entities to be announced in the coming weeks. CatalunyaCaixa’s banking business had a profit of €304 million, although the €1.5 billion provisions for the real estate business caused a €1.34 billion loss in 2011.

The Spanish Minister for the Economy, Luís de Guindos, announced in Barcelona the future creation of the so-called ‘hispanobonds’, common bonds issued by the Autonomous Communities and backed by the Spanish Treasury. The objective is to reduce high interests rates, and thus the financial costs that the Autonomous Communities have to pay when they turn towards financial markets to get liquidity. The Catalan Finance Minister proposed the original idea several few weeks ago.

There has been a unanimous call in Catalonia for greater flexibility of the deficit objectives applied to the Autonomous Communities for the current year. Every political party in Catalonia, including the People’s Party (PP), has asked the Spanish Government to provide more flexibility to the Autonomies, which manage 40% of Spain’s public spending and run basic Welfare State services. The Spanish Government has set a new deficit target of 5.8% of Spain’s GDP for 2012; internally, the Central Government allowed itself a deficit of 4% and ordered the Autonomies to commit to a deficit of 1.5%. Some Catalan parties have said that the Spanish Government has double standards.

The Spokesperson for the Catalan Government has said that the new Spanish Economy Minister’s proposal goes against the Constitution and Catalonia’s self-governance. The Basque Country is also against the measure announced by Luís de Guindos in an interview with the Financial Times. He said that the crisis “was an opportunity to impose hard conditions and measures” on the Autonomies; he also added that before the Autonomies pass their budget, the Spanish Government will have to approve it. The next day, the Spanish Vice President refused to go into detail on the issue but stated that every administration has to commit to the deficit objective.