The European Commission and the Spanish Government insist that Catalonia must meet the 1.5% deficit target

Barcelona (ACN).- The day after the Catalan Government asked for €5.02 billion for debt restructuring payments in the coming months, it faced a tough response from the European Commission and the Spanish Government. They both insisted this Wednesday that Catalonia must meet the 1.5% deficit target this year and did not recognise Catalonia’s fiscal contribution to pay for services and investments in the rest of Spain, as Spain’s richest Autonomous Community and as a net contributor to the European Union budget for decades. However, the Spanish Minister for the Economy, Luís de Guindos, “did not have any doubts” that Catalonia will meet the 1.5% deficit target. In fact, the Catalan Government insisted it will meet the deficit targets as previously agreed when it presented its austerity plan for 2012-2014. However, it was refusing “any political conditions”. The Catalan Government insisted yesterday that the money they are asking for comes from Catalan taxpayers managed by the Spanish Government, since Catalan taxpayers give away €17 billion each year to the rest of Spain, equivalent to the 8.5% of Catalonia’s GDP. Furthermore, it laments the fact that the Liquidity Fund is not in place yet, not even the details how it will work are known, despite having been announced weeks ago. The Spokesperson for the Catalan Government, Francesc Homs, stated this Wednesday that if the Liquidity Fund is not in place by September “there will be a serious problem” to honour impending payments.

The Spanish Minister Luís de Guindos stated this Wednesday that the main condition to access the money from the Liquidity Fund was to meet the 1.5% deficit target for the Autonomies. However he also stated that the Spanish Government “recognises the efforts [to reduce the deficit] made by the Catalan Government” and it “does not have any doubts that it will continue to make the necessary efforts in order to meet the 1.5% deficit of this year and the one set for next year”.

The European Commission’s Spokesperson for Economic Affairs, Simon O’Connor, said that it “notes down the Catalan Government’s announcement to request assistance”. The EC emphasised that “this petition is linked to strict fiscal conditions”, and stressed that the Catalan Government will have to meet the 1.5% deficit target for 2012.

The Spanish Government keeps most of the deficit allowed for itself

The Catalan Government has been saying it will meet the 1.5% deficit target. In fact, it was the first Autonomy to adopt drastic budget cuts a year and a half ago. However, the Catalan Finance Minister, Andreu Mas-Colell, has said on many occasions that he considers the 1.5% deficit target to be abusive. Mas-Colell, who was an Economics Professor at Harvard and Berkley universities, has been insisting that the Autonomous Communities should have higher deficit targets in order to smooth the effects of the austerity measures on the population. The Autonomies exclusively fund and manage the main public services such as healthcare, education and social policies, being responsible for almost 40% of Spain’s public spending. However, in 2012 they are only allowed a 1.5% deficit target, imposed by the Spanish Government, run by the People’s Party (PP). The European Union granted Spain a more flexible deficit target for 2012, setting the new objective at 6.3% of the country’s GDP. However, the Spanish Government kept all the flexibility allowed by Brussels for itself and obliges the Autonomies to implement drastic budget cuts.

Asking for €5 billion but funding €17 billion worth of services and investments in the rest of Spain

The Catalan Government has already implemented five waves of budget cuts and ended 2011 with an official deficit of 3.72% (although if the Spanish Government had paid the money it legally owed Catalonia in 2011, the Catalan Government’s official deficit would have been 3.29%). This means that in order to meet the 1.5% objective, the Catalan Government will have to cut €4.3 billion this year. In this situation, the vast majority of the Catalan society (more than three quarters) insists that Catalonia cannot contribute each year 8.5% of its GDP to pay for services and investments in the rest of Spain. This means that Catalan taxpayers give away €17 billion each year, an amount four times larger than the budget adjustment needed in 2012. Catalan society wants to continue contributing to fund poorer regions in Spain and Europe, but not to the current extent. If Catalonia’s contribution was halved, Catalan citizens would have more than €8 billion each year to fund its public services and infrastructures, and the Catalan Government would likely not have had a €7 billion deficit in 2011.

No recognition of Catalonia’s solidarity contribution

Instead, Catalonia, with an economy the size of Portugal and the largest within Spain, does not see this fiscal effort recognised, neither by the Spanish Government, the European Commission nor other Autonomies. The latest example of this lack of recognition arrived today from the President of Galicia’s Government, Alberto Nuñez Feijóo, who will face regional elections in less than two months. Feijóo stated that “today Galicia pays and Catalonia asks for money”. Within Spain’s fiscal redistribution scheme, Galicia is one of the Autonomies that receives more money from the State than the money it , which is the opposite to Catalonia.