deficit

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.

“In exceptional times, exceptional decisions are needed”, stated the Catalan President, Artur Mas. After the 1.5 million strong independence demonstration on September 11th, the Spanish PM’s refusal to negotiate a fiscal agreement for Catalonia, and days of speculation, Mas called for elections. He announced the decision in the Catalan Parliament’s main annual debate, in which he stated that budget cuts will continue, although “austerity cannot be the only value”. He also accused the Spanish Government of being “disloyal” and imposing stricter deficit targets on the Autonomous Communities. Catalan nationalist parties are celebrating the call for elections for giving the people a say, while the rest accuse Mas of putting his party’s interest first by deviating attention away from the dramatic economic situation.

The Catalan President states that, “if the Constitution is always interpreted from a centralist point of view”, “Catalonia will have to quietly and democratically reflect on its own future” as “no legal framework can be eternally used to annul the majority, democratic, and peaceful will of a people”. The Catalan President, Artur Mas, and the Spanish Prime Minister, Mariano Rajoy, met in Madrid 9 days after the 1.5 million strong demonstration for Catalonia’s independence. Rajoy categorically refused to negotiate a specific fiscal agreement between Catalonia and Spain because he said it does not fit into the Constitution. No one from the Spanish Government addressed the press after the meeting.

As part of the strategy to create state structures and to get a new fiscal agreement between Catalonia and Spain, the Catalan Government and the four Provincial Councils, all run by the Centre-Right Catalan Nationalist Coalition (CiU), have created the embryo of Catalonia’s Treasury. They will merge exiting structures, in terms of facilities, staff and resources, to create a single body to collect all taxes at local and Catalan level at no extra cost. The pillar for the future Catalan Treasury’s formal birth ceremony comes the day before the crucial meeting between Catalonia’s President, Artur Mas, and the Spanish Prime Minister, Mariano Rajoy. Rajoy has already said he will not accept a specific fiscal agreement for Catalonia.

The Autonomous Communities are responsible for 18.7% of Spain’s global public debt, while they manage around 40% of the country’s public spending. The Spanish Government’s share represents 76.8% of Spain’s global debt, which reached €804.39 billion at the end of June. Spain’s debt is now 75.9% of the GDP. The Catalan Government has a debt of €43.95 billion. The day before, the Spanish Finance Minister announced that the Catalan Government had a 0.59% deficit for the first half of 2012. Furthermore, Catalonia suffers from a structural fiscal deficit due to Spain’s fiscal redistribution scheme, which annually takes away 8.5% of its GDP, a €17 billion annual solidarity contribution.

By the end of the year, Catalonia must meet a 1.5% deficit target. According to the Spanish Finance Minister, Cristóbal Montoro, the Autonomous Community governments are heading “in the right direction” to honour the deficit objective for 2012. The Catalan Government had a 0.38% deficit at the end of July, according to its own sources. This represents a €767 million deficit, while at the end of July 2011 it had a 2.09 billion deficit, which represents a 63% deficit reduction.

“Listen, and listen carefully. Do not get angry if you don’t like what you see. And put solutions on the table, if you have them”, the President of the Catalan Government, Artur Mas told Spain the day after the 1.5 million strong demonstration for Catalonia’s independence. He also stated he will work to create “state structures”. The Spanish Government refused to comment directly on the event, stating it should be analysed “coldly”. However, it said Spain and Catalonia should have other priorities.

The President of the Catalan Government, Artur Mas, leader of the Centre-Right Catalan Nationalist Coalition (CiU), sent a warning message to the rest of Spain and in particular to the Spanish Government. “If there is not an agreement on the economic bases”, “Catalonia’s way to freedom is open”. The Spanish Prime Minister and leader of the People’s Party (PP), Mariano Rajoy, stated on Tuesday morning that Spain and Catalonia should have other priorities. The Spanish Government and most of the rest of Spain are against a new fiscal agreement between Catalonia and Spain, reducing the Catalan solidarity contribution, which represents some €17 billion per year. Furthermore, the Catalan PP has stated it will stop giving its parliamentary support to CiU.

Catalan nationalism has changed over the years. Most Catalan nationalists have now concluded that Spain will never accept a plurinational state, will not fully respect Catalan language and culture, will continue threatening Catalonia’s self-government, and will not accept a reduction in Catalonia’s fiscal contribution to the rest of Spain, which annually represents between 6.4% and 8.7% of the Catalan GDP. Catalan nationalists are now tired of negotiating these issues and have come to the conclusion that Spain will never accept a comfortable place for Catalonia within the Spanish state. Now, 51% of Catalans citizens would vote for the independence in a hypothetical referendum.

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 Catalan Finance Minister, Andreu Mas-Colell, asked the Spanish Government to set up a temporary short-term loan system if the announced Liquidity Fund for the Autonomies is not in place this September. The Catalan Government has been insisting on the urgent need to define and put into force this financial tool to provide the Autonomous Communities with liquidity now their access to international financial markets is impossible as they face unsustainable interest rates. In addition, Mas-Colell stated that it is very likely that more budget cuts will be needed in 2013 to meet the 0.7% deficit target. He also criticised the Spanish Government for imposing stricter deficit objectives for the Autonomies while Brussels gives Spain greater flexibility.

The decision by Spanish Government to restrict access to the public healthcare system could leave 600,000 people in Catalonia (8% of the population) without primary and specialised medical attention. 180,000 of these people would be foreigners. The Catalan Minister for Health, Boi Ruiz, explained that the measure aims to guarantee the universal access to healthcare to all the population, independent of their legal status, but at the same time avoid healthcare tourism.

The Catalan Government stated it will meet the 1.5% deficit target for the Autonomies, although it considers it to be abusive considering they manage the main public services and the Spanish Government has kept for itself all the flexibility allowed by Brussels. In addition, the Catalan Government and the Catalan economy suffer from a perpetual lack of investment by the Spanish Government, which takes away 8.5% of Catalonia’s GDP each year, a quantity much higher than the deficit target. The day after Catalonia’s request for €5 billion from the Liquidity Fund, there was no recognition of Catalonia’s fiscal deficit at a Spanish or European level. There were only calls to continue with the austerity efforts. However, the Catalan Government warns of a “serious problem” if the Liquidity Fund is not in place on time by September.

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.

Answering a letter from the Catalan President, the Spanish Prime Minister, Mariano Rajoy, stated he would study the proposal voted by the Catalan Parliament which aims to reduce the solidarity contribution from Catalonia to the rest of Spain and have all taxes raised by a Catalan-run agency. However, Rajoy had previously stated this issue was out of discussion, especially in the current economic context. A vast majority of the Catalan Parliament considers that it is precisely due to the financial stress provoked by the crisis that it is urgent to debate the excessive transfer of revenues from Catalonia to the rest of Spain. The Spanish PM also stated he has agreed to meet with the Catalan President to discuss this proposal, but he expects to talk about many other issues.