The Catalan Finance Minister stated it is "impossible" to draft a budget with a deficit of 0.7%

Barcelona (ACN).- On Monday, the Catalan Finance Minister, Andreu Mas-Colell, insisted that he cannot prepare this year’s budget with a deficit target of 0.7%. It is “impossible” he emphatically stated in front of economic and business participants at a conference in Barcelona. Mas-Colell, who is one of the world’s most respected mathematical economists, explained that a 0.7% budget means the implementation of an additional adjustment of €4.4 billion. This amount represents around 15% of the Catalan Executive’s budget for last year, which had already been reduced for the previous two years. Therefore, Mas-Colell urged the Spanish Government to find an agreement in order to modify the 0.7% deficit target and make it in line with the Catalan Executive’s spending responsibilities and management of basic public services. According to Mas-Colell, an agreement has to be found, if the Spanish Government does not want to act “as the viceroy of Catalonia”, which would de facto eliminate Catalonia’s autonomy and would blow up Spain’s constitutional agreement that was reached just after Franco’s death. The Spanish Government has already stated that it will not review the 0.7% deficit until it knows if the European Union will allow Spain’s public sector a greater deficit target for 2013, which is currently set at 4.5%. Mas-Colell announced that, in order to wait for the Spanish Government’s decision, he will not present a budget proposal until Brussels has officially announced whether it will increase Spain’s deficit level. In addition, Mas-Colell has not ruled out the possibility of extending last year’s budget, although it would be a poor solution since revenue in 2013 is expected to drop and spending will increase. Therefore, the Catalan Finance Minister admitted that the measures adopted in 2012 will not be enough to keep the deficit at last year’s level.

Mas-Colell explained that in 2013 the expected revenue will decrease by 1% despite increases in tax and the inclusion of some funds that in previous years the Spanish Government refused to pay despite being legally obliged to do so. In addition, the Catalan Government’s debt interest will grow by €300 million in 2013 and the amount of spread payments will also increase by €150 million. These payments “are heavy as a tombstone”, he stated. In addition, Mas-Colell noted that in 2013 the Catalan Government will no longer have the extraordinary revenue from the sales of the management of the public companies Tabasa (highways), Túnel del Cadí (highways) and Aigües Ter-Llobregat (water management). Selling this commercial exploitation meant €1.34 billion for the Catalan Government’s pocket, which is no longer available.

In such circumstances a €4.4-billion adjustment to be made in a single year would have to be mainly implemented over the current public services. This would blow up the Welfare State in Catalonia, one of Spain’s richest areas which has been a net contributor to the European Union for decades. The Catalan Government has very little room for manoeuvre for such an adjustment since healthcare, education and social affairs already represent 70% of the Catalan budget in 2012. With the remaining 30% the Catalan Executive has to pay for financial interest, police, prisons, judicial offices, employment policies, business promotion activities, scientific research, public transportation, water and waste management, environmental policies, agricultural subsidies, cultural facilities, public media, and local government grants, among other items.

The Spanish Government is Catalonia’s only bank right now

The Catalan Finance Minister underlined the fact that, in the current circumstances, the Spanish Government is the only entity lending money to the Catalan Executive. Considering the high financial interest which the Autonomous Communities had to pay in the international financial markets, the Spanish Government restricted their capacity to access private credit and it launched the Liquidity Fund for the Autonomous Communities (FLA) to act as a public bank for them. With this, the Spanish Government took control over the regional government’s debt levels but also the cash flow, using it as a tool for political control. In fact, Mas-Colell accused the Spanish Government of carrying out “a selective and asymmetric reduction of public bodies” with the aim of “recentralising Spain”.

“Liquidity and budget” go together

Mas-Colell remarked that the conditions imposed by the Spanish Government to access the liquidity tools (the FLA) are to meet the deficit target unilaterally imposed by the same Spanish Executive. “Liquidity and budget” go together, he stated. Therefore, he stated that “it would be useless” to draft a budget with a 2% deficit, “if nobody gives us credit to finance such a deficit” and with the Spanish Treasury as the only source for liquidity. Mas-Colell once again asked the Spanish Government to reach an agreement in order “to send a reassuring message to Europe”. The Catalan Finance Minister suggested continuing to implement austerity measures and to carry on with fiscal consolidation, but at a slower pace. Mas-Colell proposed “a soft adjustment” of 0.5% of Catalonia’s GDP to be implemented each year in order to reach a 0% deficit in four- years’ time, which would “not damage” public services.