deficit

The Catalan Socialist Party (PSC) decides not to break the Socialists’ unity and not to force a call for a binding referendum on the constitutional amendment. In addition, the PSC rejects the request of the Centre-Right Catalan Nationalist Coalition (CiU) to include within the Constitution a limitation not only the public deficit but also a limitation on inter-regional fiscal redistribution. Moreover, the CiU stated that it has been excluded from the Constitution’s modification and therefore the Constitutional consensus is now broken.

The governing Spanish Socialist Party (PSOE) and the main opposition party, the People’s Party (PP) agree to amend the Spanish Constitution to limit the deficit from public administrations. Other parties have offered to support the amendment but have not participated in the actual writing of the text. The constitutional amendment will not set a deficit figure, which will be set through a law to be approved before July 2012. The PSOE and the PP have agreed that the deficit should be limited at 0.4%: 0.26% corresponding to the State and 0.14% to the Autonomous Communities. Other parties are insisting on the need for a binding referendum.

Many in Catalonia fear that a constitutional limitation to public deficit and debt may dramatically reduce Catalonia’s already restricted fiscal autonomy, which would not only affect self-governance but also the possibility to pay for investments or public services not guaranteed by the Spanish State. The fear goes beyond Catalan party boundaries regarding the second amendment to the Spanish Constitution, which would be approved through an “urgent procedure”, almost without public and political debate. Catalan senators could force a call for a binding referendum.

Main Catalan forces share the need to control public spending and balance public finances but many fear the proposed measure could be used to trim Catalonia’s self-governance. In this line, the Catalan Government’s spokesperson asked Catalan parties to frontally oppose to any measure limiting fiscal autonomy. However, other Catalan politicians are open to discussion but “want to look at the small print”. Furthermore, the Spanish Parliament also approved the fiscal measures announced last week, by which the State will save around 5,000 million euros this year.

The Spanish Government temporary reduces the VAT on new flat’s purchase, asks the largest and profitable companies to advance money from their corporate tax, and obliges doctors to prescribe generic drugs and not brands. With all those measures, the Spanish Government expects to get 4,900 million extra euros until the end of the year.

Mas told reporters that he does not enjoy making such cuts but they are necessary to keep Catalonia from bankruptcy

Lex Writer Richard Stovin-Bradford argues in an interview with the CNA that Catalonia “is adopting strong measures” to cut its deficit while some autonomous communities “have not yet reduced the spending” as much.

The Organisation for Economic Cooperation and Development’s Senior Economist for Spain thinks that the Catalan Government’s budget cuts are going “in the right direction”. He also denied that the Autonomous Communities’ deficit puts Spain solvency’s at risk.

However, if the question is open to other options, 33% would prefer a Catalan State within a Federal Spain, 31.8% the current situation as an Autonomous Community and 25.5% want Catalonia to be an independent nation. The poll results also show that 75.5% of Catalans want the Catalan Government to raise all the taxes, while only 18.2% prefer the current system through which the Spanish Government raises the main taxes. The poll was compiled by the Catalan Polling Centre (CEO), which is managed by the Catalan Government.

PM Zapatero today proposed an expenditure limit for the Autonomous Communities before the Spanish Parliament . The Spokesperson for the Catalan Executive considers it an attack to self-governance and fiscal autonomy. In addition, he stressed that the Catalan Government is the only administration in Spain, at all levels, that has cut its expenditure by 10% in one year. He also asked the Spanish Government to make its own adjustments and pay what it legally owes to the Communities, and to Catalonia in particular.

The International Monetary Fund wants the Spanish Government to “strengthen” the labour market reform, not give up on spending cuts and restructure the financial system. The same day, the Bank of Spain's Governor, Miguel Angel Fernández Ordóñez asked the Spanish Minister for Economy to be “stricter” on the Autonomous Community government’s deficit reduction. The Catalan Minister for Finance said on several occasions that Catalonia would meet the deficit objective for 2011 if the Spanish Government showed some institutional loyalty and paid the money it legally owes to Catalonia.

The Autonomous Community public debt has increased 26% in the last 12 months and represents now the historic maximum of 11.4% of Spain’s GDP. Spain’s total public debt reached 63.6% of its GDP and totals 679.8 billion euros. The Catalan Government’s debt has reached 34.3 billion euros, 17.2% of Catalonia’s GDP. It raised 33% in the last 12 months, as the Catalan Government’s public deficit was 3.86% in 2010.

The European Commission also recognised "a different effort" to the rest of Spain’s Autonomous Communities. Brussels said so when on Tuesday it asked Spain “to strictly control” the public “deficit and debt of regional governments”, the day after Moody’s rating agency warned about Catalonia’s expected deficit for 2011. The Spanish Government took note from this particular recommendation but not the other made by Brussels, which included increasing energy taxes and VAT. The Catalan Government criticised Moody’s for “creating alarm” with assessments that do not take into account the whole situation. In addition, it denounced how the Spanish Government has reduced its own deficit by transferring it to the Autonomous Communities.

The President of the Catalan Government detailed his plan to Herman Van Rompuy to balance the Catalan budget and reduce the public deficit. Artur Mas stressed the importance of the Mediterranean Railway Corridor for the European economy and he also outlined the benefits of an effective Union for the Mediterranean, in this moment in particular. Mas was joined by Josep Antoni Duran i Lleida, his electoral ally and leader of the Catalan Christian Democrats. They also met with Competition’s Commissioner, Joaquín Almunia.

After the presentation of the Catalan Government’s budget proposal at the Catalan Parliament, opposition parties criticised its content and the lack of debate on the subject. The Catalan Government needs support from opposition MPs or at least their abstention to approve the budget, which foresees a 2.66% deficit for 2011. The Spanish Vice President for Economy Elena Salgado insists that the mechanisms of deficit control “will be strictly implemented”.