The Spanish Government concludes that there will be no money from the Competitiveness Fund in 2011

Barcelona (ACN).- Wednesday was a crucial day for the budget road map of the Spanish Autonomous Communities. The road map for this year was being discussed at the Financial and Fiscal Policy Council (FFPC), which brings together the Spanish Government and the 15 Autonomous Communities that cannot raise all their own taxes (the exceptions are the Basque Country and Navarra). The commitment by the Autonomous Communities to reach a 1.3% deficit in their 2011 budget was renewed. However, in order to meet this commitment, Catalonia is asking for all the revenues it is legally entitled to. Catalonia did not have high expectations on the FFPC meeting though, as the Catalan Government has been in a dispute with the Spanish Government over the money it should transfer to Barcelona in 2011 from the ‘Competitiveness Fund’. The two main elements of the disagreement are the exact quantity and if the money should be paid this year or even included as a pending payment in the 2011 budget. The Spanish Vice President for Finance, Elena Salgado wanted to put an end to the discussion at the FFPC. The money will not be paid this year she said. In fact, the Spanish Government did not include this money in its own budget and now should modify it and increase its own deficit. This is what Salgado wants to avoid at the expense of transferring the deficit increase to the Autonomous Communities. In the current electoral climate before the municipal elections on May 22^nd, which are also regional in some Autonomous Communities, deficit reduction measures are politically dangerous, as they imply cutting public expenditure. However, the Catalan Government has asked for “co-responsibility” from the Spanish Government and the rest of the Autonomous Communities. Catalonia does not want to make draconian efforts to reduce its public expenditure by 10% while other administrations make very small adjustments, do not make enough structural changes and refuse to fulfil their legal obligations when it comes to money transfers. Catalan politicians are almost entirely united in this claim, ranging from Catalonia’s independence supporters to Spanish Nationalists. On Wednesday, this cross-the-board support was displayed in the Spanish Senate. Spain’s highest chamber approved a motion asking the Spanish Government to pay out the money from the Competitiveness Fund this year. The motion was approved with the votes from all the Catalan Senators and the Conservative and Spanish Nationalist People’s Party (PP). However, it seems the Spanish Government is ready to ignore it judging from Salgado’s words. Mas-Colell said the Catalan Government will keep insisting on the issue and refuses for the moment taking the matter to court.

The Catalan Government has asked for “co-responsibility” to the Spanish Government and the rest of the Autonomous Communities

What the Catalan Government was asking for was an on-time payment and “co-responsibility”. The Catalan Minister for Finance refused to include this money as “pending revenue” in the 2011 budget because “we will never, never, never make up our numbers”, Professor Andreu Mas-Colell stressed. This option was later ruled out by the Spanish Ministry for Finance. However, the Spanish Ministry for Finance recognised that some Autonomous Communities could have used this accounting formula in their 2011 budget in order to meet with the objective of a 1.3% deficit. The reason: this May sees elections taking place for certain Autonomous Community parliaments, which elect the government. A bad budget with public expenditure cuts polls badly and some Autonomous Communities Governments could have delayed adjustment or austerity plans until the elections are past. In fact, the Spanish Ministry stated it will review some budgets after the 22^nd May elections. However, elections in Catalonia were already held last November, and the Catalan Government presented a drastic stability and austerity plan that reduces public expenditure by 10%. The adjustments in the Catalan public sector are so severe that, for instance, most of the Catalan healthcare system is protesting on the streets fearing budget cuts.

This situation has given Andreu Mas-Colell, the Catalan Minister for Finance, a moral authority in Wednesday’s Financial and Fiscal Policy Council, which brings together the Spanish Government and 15 Autonomous Communities except the Basque Country and Navarra. However, his words did not have enough support at the meeting held less than one month before the elections. Elena Salgado, the Spanish Vice President for Finance, put an end to the debate. The Competitiveness Fund will not be paid this year and the Autonomous Communities cannot include the money as “pending revenue” in the 2011 budget. End of discussion. In addition, the deficit objective for the Autonomous Communities for 2011 is still 1.3%, as re-confirmed at the meeting.

Salgado refuses to pay this 2011 and does not recognise the amount nor gives any other figure

It seems the “wall” that the Catalan Government was talking about this week is solid. The political discussion on this issue seems blocked. The Catalan Socialist Party (PSC), which is part of Prime Minister Zapatero’s party, supports the Catalan Government in this claim, as it demonstrated on Wednesday in the Senate by voting for the motion and therefore asking for the payment to be made this year. The PSC reminded the Catalan Government it has the option of taking the judiciary path and can take the Spanish Government to court, with a claim for the 1.45 billion euros. The Centre-Right Catalan Nationalist Coalition Convergència i Unió (CiU), which runs the Catalan Government, did not reject the idea but pointed out the long judiciary claims process. CiU seems to still trust the political route, but at the same time the Catalan Government’s patience is wearing thin. On Thursday morning, Andreu Mas-Colell confirmed the Catalan Government’s legal services are studying the issue. However, he prefers keeping the issue on the political level for the moment, as it may be faster and the Catalan Executive has enough liquidity to resist some weeks of negotiations.

The two Competitiveness Fund elements that the governments disagree on

The first element of the dispute is the claim by the Catalan Government that the Spanish Government owes it 1.45 billion euros. Two months ago it was estimating this amount at 1.35 billion euros, with calculations from the previous Catalan Executive (the Catalan Government changed just after Christmas, after November elections). However, being 1.35 or 1.45 billion euros, the Spanish Government says the figure is lower although it refuses to give any concrete or indicative figure.

The second element of the dispute is about when exactly the money should be paid. The Competitiveness Fund is part of the funding scheme of the Autonomous Communities and is supposed to compensate the fiscal effort of “richer” Communities, those with a higher GDP per capita. “Poorer” regions receive other funds, such as the Cooperation Fund. These funds are to be paid each year by the Spanish Government. However, with the current economic crisis, the Spanish Government says the law enables them to pay the fund not in 2011 but in 2013. The affected Autonomous Communities, especially Catalonia, disagree. Also the President of the Conservative and Spanish Nationalist People’s Party (PP) Mariano Rajoy [see related news] and, from this Wednesday, the Spanish Senate support the payment to be made in 2011. The Senate approved a motion asking the Spanish Government to make the payment this year. The motion received votes from the all the Catalan senators, including those from the Socialist Party (the Spanish Government’s party), and was also supported by the main opposition party, the PP.

The Spanish Government reduces its own public deficit by not making the payment in 2011

By not making the payment in 2011, the Spanish Government makes a leap forward and does not have to include the 1.45 billion euros for Catalonia in its 2011 budget. Neither does it include the 1 billion euros for the Madrid Community, several hundred million for the Valencian Community or the money from the Cooperation Fund. The Spanish Government therefore avoids paying more than 4 billion euros to the Autonomous Communities and does not have to include this money in the 2011 budget. This attitude is what both the Catalan President Artur Mas and the Catalan Minister for Finance Andreu Mas-Colell have been criticising in the last number of weeks. The Catalan Government is asking for “co-responsibility” and not “making the Autonomous Communities pay for the Spanish Government deficit reduction”. According to Mas-Colell, the Autonomous Communities see their deficit increase by not receiving the revenues they are legally entitled in 2011. The Spokesperson for the Catalan Government goes even further and compares the Spanish Government’s words and actions with those of “delinquent debtors”.