Spanish Government “regrets” the “confusion” about cancelling the €1.76 billion transfer

Madrid (ACN).- On Tuesday evening the Spanish Finance Minister, Cristóbal Montoro, “regretted” the “confusion” about having announced in October he was cancelling a €1.76 billion transfer to the Catalan Government. Without this scheduled payment, the Catalan Executive is having serious problems to fund the 1.58% deficit approved for 2013. “These things can happen” said Montoro in a laconic way before the Spanish Senate. He also added that “We are very sorry about the delay for this money”, in an unusual apology. In fact, Montoro recognised that he was “surprised” about this issue, because at the time he “did not know” if the money “was going up or down”. Ferran Bel, Senator from the Centre-Right Catalan Nationalist Coalition (CiU) – which runs the Catalan Government – urged Montoro to transfer the €1.76 billion or at least a third of it before the end of the year, as otherwise the Catalan Executive will have a financial shortage to face required payments. “Otherwise we will all have a problem”, emphasised Bel. “We will provide all the liquidity needed by the Catalan Government”, replied Montoro. However the Spanish Finance Minister did not specify the payment calendar or confirm whether part of the money would arrive before the end of the year, although he added it would be “on the short term”. In late October – 10 weeks before the end of the year – the Spanish Minister announced that the Catalan Government would not receive the €1.76 billion requested from the Liquidity Fund for the Autonomous Communities (FLA) since this money would be used by the Service Provider Fund to pay for arrear invoices. A week ago, the Catalan Government confirmed the Spanish Executive would transfer the €1.7 billion, but Montoro has not confirmed it yet.

The Spanish Government is now the only bank for the Autonomous Communities

Since mid 2012, the Autonomous Communities – including Catalonia – have no access to international financial markets to get liquidity in order to fund payment or to re-finance their debt. The Spanish Government made the decision that it would prevent the Autonomous Communities from turning towards international markets and that, instead, it would channel all those liquidity requirements through a newly created fund, the Liquidity Fund for the Autonomous Communities (FLA). This fund will offer loans that the Autonomous Communities will have to return back at a later stage, with the appropriate interest after a 2-year grace period. Therefore the FLA is the only bank regional governments can access to get cash. Borrowing money from the FLA is cheaper than the very high interest rates the Autonomous Communities were paying in the middle of the 2012 spread crisis – when there were rumours Spain could even leave the Euro; however, interest rates from the FLA are higher than those paid by the Spanish Government when it borrows this money from international financial markets. Montoro is presenting the FLA financial assistance as a mere institutional transfer, but it is not saying the Spanish Government makes money out of it.

The FLA did not cover all the deficit in 2012

Bel explained that the FLA did not cover all the Catalan Government’s deficit in 2012. Furthermore, the Spanish Government had not yet announced if there would be a Service Provider Fund to pay for arrear bills. Bel explained that the Catalan Government decided to prioritise the arrear invoices from 2012, paying “millions of euros” in the first months of 2013. If the Catalan Government would not have made this effort and had received the money from the Service Provider Fund, it would now dispose of the required money until the end of 2013.

Montoro’s October announcement causing alarm bells to ring

In mid-October, with only 10 weeks left before the end of the year, Cristóbal Montoro announced that the Catalan Government would receive €1.76 billion less from the FLA than had been previously foreseen for 2013. Montoro justified the decision by linking the FLA to the so-called Suppliers Plan (paid through the Service Provider Fund). The money to pay service providers was now to be deducted from the FLA, changing the previous conditions and making them complementary. As a consequence, the Catalan Government would not have been able to fund the 1.58% deficit allowed by the Spanish Government in 2013 after months of tedious talks to set such deficit target. In addition, the decision would have delayed some payments to suppliers. Despite the Spanish Government having decided to increase deficit targets, it did not increase the amount of money available for the FLA to fund such an increase, since the FLA has become the only source of liquidity for the Autonomous Communities. For these reason, since the FLA’s initially-foreseen amount does not cover the deficit revision of July, Ferran Bel urged Montoro to increase the FLA money in order to be able to proceed to the scheduled transfers before the end of 2013.