The Spanish Government announces in October that €1.7 billion will not be transferred to the Catalan Executive this year

Barcelona (ACN).- The Catalan Government will receive €1.7 billion less from the Spanish Liquidity Fund for the Autonomous Communities (FLA) in 2013 than had been previously foreseen. The news was announced by the Spanish Government in mid-October, with only 10 weeks left before the end of the year, therefore limiting the Catalan Executive’s room to manoeuvre. Madrid has justified the decision by linking the FLA to the so-called Suppliers Plan (the plan to lend money to the Autonomous Communities and local governments in order to enable them to pay suppliers). The money to pay suppliers will now be deducted from the FLA, changing the previous conditions and making them complementary. As a consequence, the Catalan Government will not be 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, it will have to delay 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.

With €1.7 billion less available, the Catalan Executive will only have liquidity to cover the previously-foreseen 0.7% deficit target, which is far from a deficit in line with its share of spending responsibilities within Spain’s public sector. In fact, the 0.7% deficit target only corresponds to 11% of the 6.3% deficit which has been allowed by the European Union to Spain’s entire public sector. 11% is very far from the 36% share of Spain’s total public spending which the Autonomous Communities manage, which includes exclusively running healthcare, education and social services. Furthermore, some Autonomous Communities, such as Catalonia, have greater powers devolved (such as police and prisons) and therefore manage even a higher proportion of public money. The Catalan Executive feels “tricked” as “it is not understandable that the Spanish Government has agreed on a greater deficit and later cannot fund this deficit”. The Catalan Minister for the Presidency and Spokesperson for the Executive, Francesc Homs, explained that “some payments will have to be delayed” now that the situation “has almost been normalised”.

The Catalan Executive had initially requested €9.07 billion from the FLA, €7.68 billion of which was to face debt payments and the remaining €1.39 billion was to meet the 0.7% deficit target. In July, €325 additional million were requested and an additional amount was to be requested to cover the 1.58% deficit finally allowed. The Spokesperson for the Catalan Executive, Francesc Homs explained that the Spanish Government has the possibility to access the international financial markets “at a reasonable price”, while the Catalan Government has no access at all and depends on the Spanish Executive. In fact, the Spanish Government has also to authorise the Autonomous Communities’ debts and it only authorises them through the FLA. In the coming years, the Autonomous Communities will have to return the money borrowed from the FLA with the corresponding interest rate.

With the Spanish Government’s decision to not transfer €1.7 billion to the Catalan Executive despite it having been initially foreseen, Catalonia will only have liquidity guaranteed to fund a 0.7% deficit; far below the responsibilities it has managing basic public services. The direct effects of this are that the Catalan Government will run out of money and will therefore be obliged to delay payments to suppliers (the contrary that the Suppliers Plan wanted to achieve) and, maybe, implement last minute budget cuts or froze investments.

Catalonia gives away 8.5% of its GDP and is a net contributor to the EU budget

This is done in a context where Catalonia is a net contributor to the EU and Spanish budgets, being Spain’s wealthiest area. In fact, Catalan citizens pay €16.5 billion for services and investments made in the rest of Spain, an annual fiscal deficit equivalent to 8.5% of Catalonia’s GDP. In taxation terms, 43% of Catalan taxes go to Madrid and never come back to Catalonia. Despite this, the Catalan Government is under-budgeted, although it has one of the highest tax rates in Spain and has implemented the highest budget cuts in the country. Furthermore, it started implementing budget cuts and austerity measures earlier than the Spanish Government and most of the Autonomous Communities. On top of this, it has its access to international financial markets restricted by law and the Spanish Government has the final decision on this issue. The Spanish Executive decided it will become only source of liquidity for the Autonomous Communities through the FLA, which means they have to borrow the money directly from this fund and not from international markets. Therefore, with the FLA, the Spanish Government has tight control over the Autonomous Communities finances, opening and closing the liquidity tap as it pleases.

The Spanish Government imposes a de facto 0.7% deficit for 2013 10 weeks before the end of they year

The European Union allowed Spain to post a 6.3% deficit for its entire public sector, but the Spanish Government is keeping most of it despite only managing 50% of the public money. The Spanish Government is keeping 80% of the deficit for itself. The Autonomous Communities manage an average of 36% of the public money and they exclusively run healthcare, education and social services. Furthermore, proportionally, the Catalan Government manages a greater share since it has more powers devolved. Despite these facts, the Spanish Government had only allowed Catalonia a 1.58% deficit target for 2013, equivalent to 25% of that allowed by Brussels. Now, with €1.7 billion less, the Spanish Government has imposed a de facto 0.7% deficit, equivalent to 11% of the target allowed by Brussels. On top of this, the announcement arrives in mid-October, only 10 weeks before the end of the year, putting the Catalan Government in a very delicate situation.

The Catalan Government feels “tricked” and warns that this creates “a permanent uncertainty”

The Spokesperson for the Catalan Executive stated this Tuesday they felt “tricked” by the Spanish Government’s decision not to pay them €1.7 billion. In addition he complained that that this creates “a permanent uncertainty”. Homs warned that not paying this amount will have severe consequences for Catalan finances, the first one being the delay of some payments, now that the situation “has almost been normalised” on this front. Homs added that Madrid’s decision “will hurt the real economy”, the companies supplying the public sector and their workers. In addition, he also emphasised that the international image of Spain is also being damaged. “Somebody in the Spanish Government might think that with this, the Autonomous Communities will be those blamed because payments will be delayed […] However the entire public sector will be blamed”, he warned, including the Spanish Government.

Catalan parties react to the decision

The governing Centre-Right Catalan Nationalist Coalition (CiU) highlighted the fact that this is part of the strategy to present Catalonia as “not solvent”, while “the main debtor is the Spanish Government”. The Left-Wing Catalan Independence Party (ERC) accused the Spanish Government of “blackmailing” Catalonia with not transferring the €1.7 billion from the FLA. “It is another proof of Spanish Government’s disloyalty towards Catalonia”, stated the ERC. The People’s Party (PP) – which runs the Spanish Government – stated that not paying suppliers and not receiving the €1.7 billion are totally independent things. The PP insisted that the Catalan Government should be able to pay the suppliers.