New €18,000 million Spanish fund to support autonomous communities under stress

Madrid (ACN).- The Spanish government approved a new €18,000 million fund on Friday to support the autonomous communities that have difficulties financing themselves. The money will be funded through the Treasury and a €6,000 million loan from the state lottery. Spain’s economy minister, Luis de Guindos, said in a press conference that there will be the “guarantee” that the regions will receive the money that they need but warned that they will also “ have the responsibility of paying it back”. The Spanish vice president, Soraya Sáenz de Santamaría added that the funds will only be available upon “extraordinary conditions”.

The aim of this mechanism is to offer funds to the regions that need them without going through the markets, where interest rates are very high. According to Luis de Guindos, the fund will be available for an “indefinite period while difficulties continue” and will force regions to comply with a series of “fiscal and financial” conditions. Autonomous communities that decide to use the money from the fund will have to present an adjustment plan and information on their balance sheets.

“There will even be the possibility of an intervention if they fail to repay the debts”, said Luis de Guindos. According to the minister, these conditions pretend to “guarantee a sustainable debt for the autonomous regions”. De Guindos expects the autonomous communities to ask for a maximum of €18,000 million euros. The Spanish vicepresident, Soraya Sáenz de Santamaría, urged the autonomous communities to be “responsible” and assume their “political commitments” to control the deficit and reduce public spending.

Her comments came as some autonomous governments, lead by Catalonia and Andalucía, criticized the new cut on the budget deficit from 1,1% to 0,5% for 2013 and from 1% to only 0,1% the year after. They consider these new limits as unfair, especially considering that the Spanish state now has more time to meet its own European requirements. They also criticize the fact that regions have most of the burden of spending on Health and Education and therefore should be granted more time to meet their targets. Especially, they say, because they are already effectively implementing an adjustment plan and because such an aggressive reduction on spending can damage growth prospects.

But Madrid stays inflexible. Sáenz de Santamaría said some regions are on the verge of collapse and they will be offered the opportunity to finance themselves using the new “extraordinary fund” and “under extraordinary conditions”. The vice president said all public administrations will be forced to change because of the crisis and everyone will have to decide how to do it. “There is no other way. We can only ask citizens to make an effort if all administrations and politicians make that same effort as well”, she added.

VAT increase

In their meeting on Friday, the Spanish cabinet also agreed that the new VAT increase will come into force in September. The general value-added tax rate will rise to 21% and the reduced rate to 10%. Some products and services that were included in the reduced rate will be changed to the general one, such as funeral services, hairdressers and optical services. The Spanish government will also introduce new legislation for raid, road and air transport and reforms on the energy sector soon. The pensions system may also be modified after negotiation with other parties and changes into local government will be introduced too.

In their cabinet meeting the Spanish ministers also approved wage cuts for public workers and cuts in unemployment benefits announced on Wednesday. The Catalan government confirmed that the cuts of the public servants’ pay will affect also its workers. The Catalan vice president, Joana Ortega, said already that in that case, another wage cut introduced by the Catalan administration and expected to affect salaries in December will not be applied.