Col·lectiu Emma - Explaining Catalonia

Wednesday, 8 june 2011


Notes on Spanish public deficit and the regions’ responsibility

There have been in the last few weeks repeated informations in the international press about the current economic difficulties in Spain. One generally accepted view seems to be that the regions -Catalonia is usually mentioned in that regard- are the main obstacle to the good management of the crisis. The central government, on the other hand, is presented as a responsible party that is by and large taking the appropriate adjustment measures. We in Col·lectiu Emma share the general concern over the precarious financial situation in Spain and over the role that the system of autonomous communities has had in bringing it about, but we would also like to draw attention to a few points that tend to be passed over in those reports.

For one thing, we believe that the central government is being let off the hook too easily. For years it has been unable or unwilling to implement structural reforms -a new framework for labor relations or a rationalization of public expenditure, for instance, as well as a serious overhaul of the devolution system- that are now long overdue. And it is still pushing on with extravagant programs -like the high-speed rail project- that it could hardly afford even when everything seemed to be going its way. It has also farmed out to the regions the provision of basic services like health and education, but hasn't given up complete control of the resources needed to pay for those services. It still collects taxes, which go to a central fund, then keeps a large percentage of the proceeds for its own operations and distributes the rest as it sees fit. Thus, it has at its disposal considerable amounts for general uses where there is much margin for adjustment. The funds managed by the regional authorities, on the other hand, tend to be earmarked for core services to their populations, with little scope for reductions without endangering essential programs.

We also believe that Catalonia is being unjustly singled out. Many things have been done wrong, but this is now acknowledged and work is underway to redress the situation. The administration responsible for the mismanagement of the last few years has been voted out and, based on the strong mandate that it received in the polls, the new regional government has taken some decisive -and sometimes unpopular- corrective action.

But that doesn't seem to be enough. Even after the severe budget cuts that are being implemented, the projected figure for the Catalan deficit in 2011 is 2.6% of GDP, which doubles the central government's target for the year. Significantly, however, the central government is refusing to make any advances on the payment of the so-called competitiveness fund for 2011, estimated in the amount of 1.45 billion euros. It is true that it isn't required by law to do so until after the closing of the fiscal year, but in the past those funds had been released as a matter of course to be used during the current periods. The simple expedient of entering that amount in the books before the funds are actually disbursed would have kept the proposed budget for 2011 within the 1.3% target, but, in the words of finance councillor Andreu Mas-Colell, the Catalan side will not doctor the accounts. In the end, it's all a matter of which budget that sum is credited to in 2011. As it is, it makes the central government's accounts look better while the blame for the deficit can be laid on the Catalans. The same is also true in the case of the Madrid community, which has already taken legal action against the central government over this matter. Professor Guillem López-Casasnovas, one of the Directors on the Board of the Spanish Central Bank, denounced in a recent article "a system where resources are unilaterally determined and funds advanced at the convenience of the state's budgetary balance".

On the matter of the regions' responsibility, one should also be careful not to lump together those whose productive base can allow them to overcome the crisis and those whose future will depend to a large extent on government handouts. Or those that are already taking some painful measures and those that this late in the game haven't yet started on a serious program of financial restraint for the coming period. We can agree that the system of autonomous communities has created overlapping administrative layers, a growing public sector in the regions without parallel reductions in the center and countless opportunities for pork-barrel projects, unjustifiable spending and across-the-board waste. Still, a distinction needs to be made between the productive communities that are essentially carrying the burden of an inefficient state organization and those that have been thriving on somebody else's money.

Catalans are right to call into question an unworkable arrangement that is largely sustained by their taxes. We can't insist enough on the fact that Catalonia's fiscal surplus with the central government amounts to a staggering 10% of the regional GDP -over 20 billion euros a year of Catalan money that the state reserves for its own ends. Without this burden, there would be no Catalan deficit. On the contrary, in the words of former IMF Chief Economist Kenneth Rogoff, "Catalonia, as an independent nation, would be one of the richest countries in the world". This opinion was echoed in a recent article in the Harvard Kennedy School Review and in the past Col·lectiu Emma has provided information that points in the same direction.

These are some of the matters that, to our mind, have not been getting enough attention in recent accounts of the situation in Spain. We are sure that a more thorough assessment would show that the root of the present problems is not in Catalonia, but rather in the prevailing structure of the Spanish state, with an inflated central government and a host of fiscally irresponsible regional governments draining the resources of a few productive communities.

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Col·lectiu Emma - Explaining Catalonia

Col·lectiu Emma is a network of Catalans and non-Catalans living in different countries who have made it their job to track and review news reports about Catalonia in the international media. Our goal is to ensure that the world's public opinion gets a fair picture of the country's reality today and in history.

We aim to be recognized as a trustworthy source of information and ideas about Catalonia from a Catalan point of view.
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Col·lectiu Emma - Explaining Catalonia