Madrid allows the Catalan Government to issue new debt

Madrid (ACN).- Catalonia will be able to ask for new credit again, but only for a limited amount and used to cover old loans. The Spanish Government has said that 8 autonomous communities, Catalonia included, can issue new debt today but with two conditions attached: limited amount and for old loans. Catalonia was the community that apparently got the highest debt amount, 1,866 million euros. However, this quantity is a tricky one, as 1,090 million is allocated to pay healthcare expenditure from previous years, which was globally put in the 2006 budget. Therefore, putting the 2006 healthcare debts aside, the Spanish Government allowed Catalonia to issue new debt for 776 million euros to face other obligations. Catalonia was not alone today and 7 other autonomous communities were allowed to issue new debt.

When the Spanish Prime Minister José Luís Rodríguez Zapatero and the President of the Catalan Government Artur Mas met two weeks ago, many leaders of other autonomous communities accused Catalonia of receiving privileges to be able to issue new debt. After 24 hours of blurred communication, the Spanish Government certified that Catalonia was not privileged and that other autonomies could be allowed to issue new debt. The Spanish Government allowed thus Catalonia and 7 other communities get the following limits: Madrid Community (819.7 millions), Andalucía (501.5 millions), Galicia (419 millions), Balearic Islands (80.5 millions), Asturias (71.3 millions), Canarias (45.8 millions), and Extremadura (25.6 millions). Catalonia was allowed to issue debt for a global limit of 1,866 million euros. However, 1,090 millions are to finance healthcare services from 2006, so there is only 776 million left for the rest.

The “healthcare deficit”

The Spanish Government recognised in 2005 that the autonomous communities’ healthcare services were poorly funded and that it should transfer more money, in particular to the Catalan one. It was then known as “the healthcare deficit”. It started doing so in 2006, starting to pay for old debts. The new fiscal redistribution agreement from 2009 foresaw other mechanisms to pay for the historic “healthcare deficit” and the Catalan infrastructure deficit. The problem is that with the economic crisis, the new model did not bring all the revenues expected. This is why the Spanish Government still had to pay for healthcare services delivered by the Catalan Government and budgeted in 2006.

“1,000 million are enough”

The Catalan Minister for Economy, Andreu Mas-Colell, stated yesterday in the Catalan Parliament that “1,000 million euros were enough” to face the urgent financial obligations of the Catalan Government. Artur Mas stated two weeks ago that the Spanish Government would allow an initial issue of debt for about “2,000 or 2,500 million euros”. In the end, the initial amount was 1,866 million euros. The Catalan Government will now decide if it issues treasury bonds and offers them to private citizens, as it did last autumn, or if it goes to the financial markets and asks for a loan. Mas-Colell stated some days ago that the Catalan Governemnt preferred long-term debt, as opposed to short-term bonds or credits. However, he did not say whether he preferred bonds or loans.

11,662 million of new debt for 2011

However, Andreu Mas-Colell quantified the new debt needs for 2011 of the Catalan Government are around 11,000 million euros two weeks ago. Today, the Catalan Government released its stability and austerity plan for 2011-2013, which will cut this year’s deficit to 1.3% of the Catalan GDP. In this document, the Catalan Government quantifies the new debt need for 2011 as 11,662 million euros, considering expiring loans, the 1.3% of deficit for 2011 and the excessive deficit for 2010. In other end, the deficit for 2010 will be 3.9% of the Catalan GDP, and not the announced 3.6%, and very far away from the committed 2.4%. To face the excessive deficit, the Catalan Government will cut public expenditure by 10% and issue new debt to face cash problems.

The Catalan Government will thus need to issue new debt but also receive pending money transfers from the Spanish Government. Madrid owes Catalonia 1,350 millions from the Competitiveness Fund (which was emptied by Zapatero’s Government to reduce public deficit) and 1,200 from healthcare payments regarding transferred hospitals (the hospitals were transferred and managed by the Catalan Government but not the budget).

Besides today’s authorisation, two other authorisations for issuing new debt from the Spanish Government are expected in the next weeks. The next one will be the authorisation after the definite approval of the Catalan Government’s austerity and stability plan by the Spanish Ministry of Economy. This approval is expected to come within the next days. The other authorisation would come after the joint meeting of the Spanish Government with all the autonomous communities but the Basque Country and Navarra, which have a different fiscal system and contribute much less to regional redistribution. This meeting is expected to be held before the end of April.