austerity plan

In 2015 the employees of the Catalan Government and related institutions and public companies will receive their full salary once again after having suffered a 7.5% reduction over the last 3 years. The Spokesperson for the Catalan Government and Minister for the Presidency, Francesc Homs, announced the measure on Tuesday, after the weekly Cabinet meeting. Furthermore, the Executive will also stop the 15% reduction of working hours and salary of temporary workers in the public sector. Those austerity measures were approved in the 2012 budget as a drastic way to cut public spending in order to reduce the public deficit. The Spanish Government has been unilaterally imposing strict deficit targets on the Catalan Executive while it maintained an unfair inter-territorial fiscal scheme with Catalonia and reduced its resources. In fact, the Spanish Government and most of the other Autonomous Communities did not reduce public salaries in the worst years of economic crisis, while the Catalan Government was the first one to launch the ambitious austerity plan.

The Government of Extremadura, a region bordering Portugal, presented a study comparing its contributions to the rest of Spain with those of the other Autonomous Communities, particularly focusing on Catalonia. The main thrust of the report was that Catalonia receives the highest amount of money from the Spanish Government, which goes against absolutely all the previous studies that have established that Catalan taxes fund services, investments and infrastructure in the rest of Spain. The Catalan Finance Minister, Andreu Mas-Colell, characterised “the political document” presented by Extremadura’s Government as a “complete nonsense”. Mas-Colell, who was Professor of Economics at Berkley and Harvard from 1972 to 1995, said that the report lacked rigour and was not a technical work. The next day Extremadura’s President, José Antonio Monago, stated that Catalonia is “a privileged territory” and questioned whether it could repay its debt.

Thousands of people – 12,000 according to Barcelona’s local police and 200,000 according to the organisers – demonstrated on Sunday in the streets of Barcelona to protest against the Spanish and Catalan Governments’ austerity measures and “antisocial” budgets. Led by the platform ‘Prou Retallades’ (“Stop Budget Cuts”) , the UGT and CCOO trade-unions, as well as political parties and associations, citizens voiced their disapproval of the new pension reform, working fragility and the latest austerity measures. They also specifically protested against the Catalan and Spanish Governments’ budgets for 2014, which they consider “antisocial”. The demonstration organisers criticised the “blind obedience” of the Catalan and Spanish Executives to the European Commission and the Troika.

A month ago, the Catalan Government issued a preliminary deficit figure for last year of 2.3%. Now, the Catalan Finance Minister, Andreu Mas-Colell, has corrected this and issued “a more precise figure, although not definitive yet”, which represents having undertaken an adjustment of €3.3 billion in a single year. The Catalan Government was supposed to meet a deficit target of 1.5% in 2012, a figure imposed by the Spanish Executive and considered too strict by Mas-Colell, since it is not proportional to the Catalan Executive’s share of public spending. For 2013, the Spanish Government is imposing an even stricter 0.7% deficit target. Mas-Colell has been repeating that it is “irrational” and needs to be changed.

If the Spanish Government had honoured its legal commitments and did not “centrifuge the deficit” towards the Autonomous Communities, the Catalan Government would have ended 2012 with a deficit of 1.53%, according to the Catalan Finance Minister, Andreu Mas-Colell. Instead, the Catalan Government had a deficit of 2.3%, 0.8 percentage points higher than the 1.5% deficit target. In any case, Catalonia’s deficit still decreased from 3.99% in 2011 to 2.3% last year, a reduction representing €3.48 billion, despite the recession, the consequent drop in tax collection and paying €1.72 billion in debt interest. In the last 2 years, the Catalan Government has reduced its expenditure by €4.2 billion, representing a daily reduction of €5.7 million.

Catalonia and the Autonomous Communities run by the Socialist Party (PSOE) were asking to make the Spanish Government’s deficit targets stricter and to proportionally relax those of the Autonomies. The Spanish Prime Minister Rajoy and the Autonomies run by the PP have opposed this redistribution, which would have transferred part of the flexibility allowed by Brussels to the Autonomies. In fact, when Brussels relaxed Spain’s deficit targets for 2012 and 2013, the Spanish Government did not share this flexibility with the Autonomies, which are responsible for almost 40% of the public spending and the managing of the Welfare State services. On the contrary, it made the Autonomies’ deficit targets stricter for 2013.

The German Chancellor is “impressed” with Spain’s reforms. According to Angela Merkel, the reforms are headed “in the right direction”, they need to be pursued “at all government levels” and they will need “time to show their results”, “as it happened in Germany ten years ago” with their structural reforms. Angela Merkel met with the Spanish Prime Minister Mariano Rajoy in Madrid, the day the European Central Bank announced it was buying sovereign bonds. Merkel stated that reforms have to continue “at all government levels”. The Chancellor also defended the European Union as a project guaranteeing peace and prosperity, and the Euro as “our common currency”.

The Spokesperson for the Catalan Government emphasised the money requested comes from Catalan taxpayers, since Catalonia pays €17 billion each year for services and investments in the rest of Spain. Nonetheless, the Catalan Executive stated it will meet the deficit targets and will follow the already approved austerity plan. The Spanish PM and leader of the People’s Party (PP) confirms it will “help Catalonia as we help the other Autonomous Communities”. However, the PP Spokesperson in Catalonia said the Catalan Government will have to accept whatever the conditions are. The Catalan Socialists want to know what the €5 billion will be spent on before supporting the decision. The Catalan Independence parties criticised the decision for having given away Catalonia’s autonomy.

The Spanish Prime Minister, Mariano Rajoy, has announced further budget cuts for 2013 and 2014, totalling an additional €89.1 billion. These budget cuts are to be added to those implemented between 2010 and 2012. Autonomous Communities will have to cut their budget by an additional €19 billion in 2013 and 2014, which is added to the €15 billion already announced in Spring affecting education and healthcare. However, no details of the €19 billion plan were provided. Rajoy stated that in 2014 the Spanish economy will grow by 1.2%, leaving the recession behind. With this plan, Spain’s public deficit for 2013 will be set at 4.5% and at 2.8% for 2014.

The ruling Centre-Right Catalan Nationalist Coalition, Convergència i Unió (CiU) and the People’s Party (PP) have agreed to evaluate the drug prescription fee in 2013. The implementation in 2013 of the 1 euro fee will be on the condition of meeting the deficit targets and the effects of other financial measures regarding medicines. The PP has abstained in the Catalan Parliament’s vote and the plan finally has the green light to be implemented.

The Catalan Government will adjust its budget by €4.295 billion in 2012, through spend cuts of €2.680 billion and increasing revenue by €1.615 billion. With this plan, the Catalan Government will meet the 1.5% deficit target. The Council of Fiscal and Financial Policy (CPFF), which brings together the Spanish Government and the 17 Autonomies, has approved Catalonia’s budget adjustment plan for 2012-2014. The Spanish Government would pay part of the money owed, but not all of it. The Catalan Government has included a plan B in case the Spanish Government does not honour its fiscal obligations towards Catalonia.

The Catalan President, Artur Mas, has met with the UK Deputy Prime Minister, Nick Clegg at a summit of European Liberal leaders. He stressed that Catalonia is doing “its homework” despite the excessive and “continuous fiscal drainage” from the Spanish State, which “is unprecedented in Europe”. “European leaders must understand” Catalonia’s situation, Mas said. “We need to explain ourselves” […] “because otherwise the only image that is received abroad is distorted”. He also explained that Catalonia’s GDP is the size of Portugal’s and Finland’s, and has an export level similar to Denmark. Mas also criticised Rajoy’s recent tax increase.

Artur Mas, President of the Catalan Government, has reflected on his first year in office. Mas justified the budget cuts his government has made in order to avoid “a collapse” in public services. He also criticised the recent trend of patronising the Autonomous Communities and claiming that they are responsible for Spain’s financial problems. That, he believes, has made them scapegoats. “The Autonomies are a very important part of the State”, “they provide almost all public services to citizens”, he stressed. In addition, Mas insisted that Spain’s debt and deficit is mainly due to the Spanish Government’s overspending over many years and not the fault of the Autonomies or the municipalities.