The Catalan Government is on its way to addressing its finances

Barcelona (ACN).- The Catalan Government needs cash, just like all European governments. And it needs access to credit, just like all European governments. The difference in this case is that the Spanish Government threatened the Catalan Government to ban getting new credits, if it did not present an austerity plan and reduce its deficit. The Catalan Government ended 2010 with 3.6% of a public deficit, a considerably low figure considering other governments’ figures but far away from the 2.4% than the Spanish Government asked the Autonomous Communities to commit to. The Catalan Government had to increase its deficit because of the decrease of revenues, in part due to the Spanish Government decisions, and an expenditure increase, in part also due to decisions taken by the Spanish Government. The new Catalan Government, which took office a month ago, complained about this situation and engaged publicly in addressing the public finances. The new Catalan President Artur Mas stated that the 2011 budget would be reduced by 10% in comparison to the 2010 one. The Catalan Minister for Economy, professor Andreu Mas-Colell, presented on Friday a viability and austerity plan and yesterday he sent the plan to Madrid to reassure the Spanish Ministry of Economy. The document clarifies the measures for ensuring the 2011 deficit is 1.3%. With these actions, the Catalan Government expects to address the situation and be able to get new credits.

In March, the Catalan Government foresees to issue more public debt in order to get liquidity. The new credit will be long-term. This will be done while public expenditure is drastically cut, in order not to increase the public deficit. In addition, public deficit will be reduced by 2.3 points this year and it will be set at 1.3% for 2011. This is the Catalan Government’s commitment, sent to the Spanish Government for its final review. Once Madrid gives it the green light, the Catalan Government will have new access to credit. In fact, the Spanish Government threatened a few days ago to stop the Catalan Government’s capacity to issue new debt. It was an attempt to put pressure on the new Catalan Government, which took office at the end of December, and redirect the international markets’ attention to the Autonomous Communities. The Spanish Government’s tactics is not only economic but mainly political.

All the Autonomous communities committed to the Spanish Government’s request of a .2.4% deficit for 2010. However, the commitment was done before summertime, with some revenues expected from the Spanish Government that never arrived and with later decisions by the Spanish Government, which conditioned the Autonomous Communities’ expenditure and thus their finances. In the case of Catalonia, it presented a public deficit higher than expected: 3.6% for 2010. The Spanish Government threatened to block the Catalan Government’s access to new credits, which would condemn it to a financial asphyxia. All the Autonomous Communities had to present a viability plan. Catalonia had one month more due to the Government change. Catalonia’s viability and austerity plan would drastically reduce the Catalan Government’s expenditure by 10% and would set the deficit for 2011 at 1.3%. The main points of the plan were presented on Friday and the details of the plan were sent yesterday to the Spanish Ministry of Economy for reviewing.

The Government foresees to sell assets like some public buildings. The mechanism foresees that the Government would then rent the assets and in the future it could buy them back. The mechanism is known as a “leaseback”, it would give liquidity to the Government during these months and it would enable it to reconsider its decision in the future if it wants to buy back the assets, without committing to actually buying them all back.

The Catalan President Artur Mas expects that once the austerity plan is presented and checked, he will be able to talk to the Spanish Prime Minister on measures against the crisis and pending competence transfers.

Wide debate on the Catalan Government’s financial situation

More statements have been added to the debate on the Catalan Government’s finances. Today a ruling party leading member warned that the situation is “dramatic”, while the Government was guaranteeing it had enough money [please refer to related news]. The Financial Times also joined the debate. The economic newspaper states that the Catalan debt could harm the Spanish Government’s efforts to control the deficit and thus for its economic recovery. The newspaper also interviews the Catalan Minister for Economy, Andreu Mas-Colell, who admited that Catalonia would need 10,000 million euros in the next months. However, Mas-Colell is confident that the Government will be able to get this cash in the coming months, as the austerity plan is in place and the Government is committed to reducing its expenditure and the deficit.

Despite this commitment, the Financial Times insists on the risk that the Autonomous Communities’ finances represent for the Spanish Government commitment to reduce the deficit. These administrations, which are responsible for some 40% of the public expenditure, are responsible for 17% of Spain’s public debt. They have a total debt of 107,000 million euros. A third of it corresponds to Catalonia, according to the Financial Times. The Autonomous Communities are thus in the spotlight, Catalonia in particular. In this analysis, the GDP should be taken into account, as well as the public services provided, as Catalonia is responsible for most of the social services, like healthcare and education. In addition, putting Catalonia on the spotlight and the Autonomous Communities needs to be read beyond a mere economic problem but political. The Autonomous Communities can be the perfect scapegoat for the Spanish Government and the 2 main Spanish political parties, the Socialist Party (PSOE) and the Peoples Party (PP). The PP and the PSOE are starting to quarrel on which one is seen as the strongest defender of Spain’s strength and pride, in other words, of Spanish Nationalism, a useful trigger in times of crisis.