The Catalan Government’s will finally request €5.43 billion from the Spanish Government’s Liquidity Fund

Madrid (ACN).- On Thursday it was released that the agreement signed last Friday by the Catalan Government and the Spanish Official Loan Institute (ICO) on the funds requested from the Spanish Government’s Liquidity Fund for the Autonomous Communities (FLA) was for a total amount of €5.43 billion (€5,433.9 million) instead of the €5.023 billion initially foreseen. The €410 million increase is because the Spanish Government has included more types of payments eligible for receiving funds from the FLA. At the end of August, the Catalan Government announced that it had requested €5.02 billion for the rest of 2012 to pay for debt maturities and payments to private healthcare, education and social centres receiving public funds. Now it will also include payments to service providers and to local councils. Sources from the Spanish and Catalan Finance Ministries have confirmed the news to ACN. The FLA was created to act as a bank to solve the Autonomous Communities’ liquidity difficulties, since they have no longer access to international financial markets at sustainable interest rates.

Last week, the Catalan Government received the first part of the €5.43 billion: €471 million to pay for debt maturities. On Tuesday it received the second part of €568 million, which arrived after some delay and obliged the Catalan Government to re-schedule September payments to private healthcare, education and social centres receiving public funds. These last payments have been finally made this week.

The Spanish Finance Ministry explained that the Catalan Government had made its first request in July, while the FLA’s final criteria were set on 24^th September, modifying the types of payments eligible. Accordingly, the Catalan Government modified its initial request up to the final €5.43 billion.

Catalonia is a net contributor to Spain and the European Union, but is now obliged to ask for money

The Catalan Government has been paradoxically obliged to apply to the Spanish Government for funds from the FLA, while Catalan taxpayers are those contributing the most to pay for investments and services in the rest of Spain. In addition, Catalonia has been for decades a net contributor to the European Union. Furthermore, Catalan citizens and companies suffer from a permanent lack of investment in Catalonia by the Spanish Government that severely affects the quality of its public services and the competitiveness of its economy. In addition, there is a broad consensus in Catalonia among the political class, main business associations and civil society organisations that the Catalan Government suffers from a lack of funding under Spain’s current fiscal scheme. The result is that Catalonia, despite being the richest Autonomous Community in Spain, has problems fully funding the basic Welfare State services it provides its citizens, such as healthcare, education, social services, police and prisons.

According to data from 2009, Catalan taxpayers only received 57 cents back from each euro paid in taxes in the form of investments or services. Official data released by the Catalan Government stated that between 1986 and 2009, Catalonia gave an average of 8.5% of its GDP to pay for services and investments in the rest of Spain (calculated using the monetary flow formula). The Spanish Government has only released this sort of data once, in 2008, with data from 2005. It showed that Catalonia had a fiscal deficit of between 6.38% and 8.70% of its GDP, depending on the formula used. The amount in 2005 represented a fiscal redistribution total ranging from €10.86 billion to €14.81 billion respectively. Nowadays, it could represent a total of almost €17 billion.

This imposed solidarity effort is judged to be excessive by a large part of the Catalan society, which would like the fiscal deficit to be reduced and limited, especially when essential infrastructures are not built and public services are under-budgeted in Catalonia. This is why the Catalan Parliament issued a mandate to the Catalan Government to negotiate a specific fiscal agreement with Spain, reducing Catalonia’s contribution. However, the Spanish Prime Minister, Mariano Rajoy, refused to negotiate such an agreement.

This structural deficit turns into the Catalan Government’s deficit that, after many years, has left Catalonia with the largest amount of debt among the Spanish Autonomous Communities, with €43.95 billion (data from last June). However, looking at Spain’s total public debt, the Autonomous Communities have only generated a 20% of the debt, despite being responsible for some 37% of all the public spending and the exclusive management of the Welfare State services apart from unemployment grants and pensions.