public deficit

“Absurd, useless, dreadful, and inopportune” is what Spain’s Finance Minister thinks about the Catalan Government’s proposal to internally split the 5.8% deficit target for 2012 more proportionally. The Catalan Government has asked for the Autonomous Communities’ deficit to increase from 1.5% to 1.7% of Spain’s GDP, and the deficit generated by the services directly managed by the Spanish Government to fall from 4% to 3.8%. The Spanish Government believes that it has already undertaken severe austerity measures and that now it is the turn of the Autonomies.

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 Catalan Government considers the Spanish Government to be “disloyal” for unilaterally setting the new deficit objectives and for not allowing the same degree of flexibility to the autonomous communities, who manage all basic services. The Autonomies’ new deficit target has been set at 1.5% while that of the Spanish Government is set at 4%. Mariano Rajoy has announced that Spain will have a total public deficit of 5.8% of its GDP, and not the 4.4% previously agreed with the rest of the European Union Member States. Rajoy has argued that, with a recession coming, the situation has changed and the stability pact foresees changing the targets.

The lack of satisfactory offers has forced the Catalan Government to postpone its plan of selling several buildings off for cheap and losing money. Selling real estate assets is one of the ways the Catalan Government hopes to increase revenue and reduce the public deficit. Since none of the offers reached the minimum expected, the Government has decided to wait and postpone the sale.

The Spanish Government stressed that no Autonomous Government will be left disappointed if they have a “responsible” attitude and have an austerity plan in place. However, those failing these measures could be intervened the same way “the European Union” has done with countries such as Greece and Ireland, but without “having their powers taken away”, clarified the Spanish Finance Minister, Cristóbal Montoro. The Autonomous Community governments have renewed their 1.3% deficit objective for 2012 and the Spanish Government has offered additional tools to raise funds and solve liquidity issues. The Catalan Finance Minister, Andreu Mas-Colell, has met bilaterally with Montoro to foster cooperation and discuss the Catalan Government’s claims about the €2.2 billion the Spanish Government owes Catalonia.

The Financial Times has published an interview with the President of the Catalan Government, Artur Mas. The Financial Times stressed Mas’ request for a new deal between Spain and Catalonia, which would reduce Catalonia’s contributions to the rest of Spain by half. The FT explained that between 8% and 9% of the annual Catalan GDP, which represents between €17 billion and €18 billion per year, goes to the rest of Spain to pay for solidarity funds for poorer regions. The newspaper also praised the “pioneering” austerity measures implemented by the Catalan Government.

Catalonia already approved its own spending limit through a law of its own last September. The Spanish Vice President, Soraya Sáenz de Santamaría, explained that the new Budget Stability and Sustainability Law will introduce “mechanism corrections” and “almost automatic” sanctions for public administrations that do not meet the deficit objectives. In addition, before approving their budget, the Autonomies and large city town councils will have to commit to a spending limit and present detailed reports on several aspects of the budget. However, she stressed that each autonomous government will have the freedom to allocate resources.

In the last number of weeks, regional governments in Spain have been taking the blame for the deficit, and in the past week have done so at an international level. However, Spain’s Central Government is responsible for 63% of the country’s deficit and 75% of public debt, despite controlling less than half of public expenditure and having far greater control over revenue. Regional governments have produced less than 20% of Spain’s public debt and in 2011 were responsible for 33% of the country’s deficit, despite representing around 40% of the public expenditure total and managing the most expensive and socially-rooted policies (healthcare, education, social grants, public transportation, etc.).

The Spanish Finance Minister, Cristóbal Montoro, announced that the Central Government might heavily fine the governments of Autonomous Communities that do not meet the deficit objective. Montoro, from the People’s Party (PP), met with the regional governments run by his party to prepare a common position on the issue. On the same day, the Centre-Right Catalan Nationalist Coalition (CiU) gave its support to the Spanish’s Government decree to cut public spending and increase taxes, announced at the end of December.

Artur Mas, President of the Catalan Government, has reflected on his first year in office. Mas justified the budget cuts his government has made in order to avoid “a collapse” in public services. He also criticised the recent trend of patronising the Autonomous Communities and claiming that they are responsible for Spain’s financial problems. That, he believes, has made them scapegoats. “The Autonomies are a very important part of the State”, “they provide almost all public services to citizens”, he stressed. In addition, Mas insisted that Spain’s debt and deficit is mainly due to the Spanish Government’s overspending over many years and not the fault of the Autonomies or the municipalities.

The Catalan Government will reduce department expenditure by 3.8%, public sector prices will increase and real estate assets will be sold. In addition, a symbolic tourist tax and a universal fee for each drug prescription will be introduced. The Catalan Finance Minister, Andreu Mas-Colell, insisted that next year’s budget continues with the two-year adjustment plan, which has been designed to reach a 1.3% deficit objective in 2012. Basic welfare services and security and judicial policies are the areas least affected by the reductions. In the next few weeks, parliamentary negotiations will take place to approve the final budget.

In order to foster transparency, almost all the Catalan Members of the European Parliament have asked the European Commission to supervise the Catalan Government's budget, and other “regions of systemic importance”. Catalonia’s GDP is as big as that of Finland and Portugal. MEPs from CiU, ERC, ICV, and the PP believe that this procedure will prove Catalonia’s reliability and rigour, and will subsequently have a positive effect on the international financial markets. The PSC is looking at possibly joining the initiative.

The Catalan Minister for Finance, Andreu Mas-Colell stated in a press conference that because of the Spanish Government’s refusal to pay them the promised €759 million, the Catalan Government will be short of cash for the remainder of the year. Mas-Colell explained that Catalan public employees would receive most of their Christmas bonus with a one week delay. In addition, service providers will also be paid later. Visibly angry and arguing that they had not been previously informed about the measures, union representatives decided to leave the negotiation table with the Catalan Government where talks had been taking place about next year’s salaries, working conditions and staff numbers.

Public employees have taken to the streets to put pressure on the Catalan Government during the negotiation of next year’s budget. The Government proposed 19 measures affecting public employees and aimed at saving €625 million in 2012. They include salary reductions, modifications in working conditions and review “of temporary staff”. Negotiations began on November 30th and, despite some temporary suspensions, they are on-going. The Catalan Government wants to close a deal as soon as possible, and unions want to keep negotiating until next year’s budget approval.

The outgoing Spanish Government has refused to pay Catalonia €759 million this year despite being legally obliged to do so and having stated publicly on several occasions it would pay the money. The Spokesperson for the Catalan Government announced Catalonia is risking to miss the deficit objective for 2011 without the funds. Facing this situation and the damage caused by it, the Catalan Government has decided to take the Spanish State to court and explain the issue to European institutions. Mariano Rajoy, Spain’s future Prime Minister, has said that he is not aware of the issue.