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The Observer

Mission Impossible (2017)

"You will comply with the deficit, ministers. Now is not the time to go into this and that and that and this!" With his usual charm, Spain’s Finance Minister Cristóbal Montoro systematically refused to negotiate deficit targets with his regional counterparts

"You will comply with the deficit, ministers. Now is not the time to go into this and that and that and this!" With his usual charm, Spain’s Finance Minister Cristóbal Montoro systematically refused to negotiate deficit targets with his regional counterparts. Nor did he allow changes in resources related to the regional financing system, although by law it was expected that the 2009 model was to be reviewed in 2013 and it would come into force the following year. During the rough years of the economic crisis, at the Fiscal and Financial Policy Council (CPFF) Montoro systematically imposed deficit targets on Spain’s autonomous regions that were incompatible with their responsibilities for providing basic social services such as health and education or to implement their transportation, environmental and housing policies.

The pipeline

Meanwhile, the minister publicly repeated that the funding will not be reviewed until it could "bring resources to the system’s pipeline". In other words, inject more money into all the autonomous governments. More resources for all, to allow them to meet two objectives. First, to avoid the state having to make the adjustments that would have meant he had to return more money to the autonomous communities (vertical distribution) and, second, to avoid the political risks arising from the need to apply equitable criteria between the autonomous communities to put an end to a system which is not only outdated but unbalanced, opaque and, above all, arbitrary. Skirting the responsibility of tackling a system that punishes the communities on the Mediterranean coast and rewards Extremadura, Cantabria and La Rioja.

The PP government has encouraged a battle in the public arena between regional gladiators willing to fight each other over a tenth of the deficit. Meanwhile the central government increases the state’s revenues with tax hikes that have not resulted in one euro more for Catalonia, thanks to the opaque structure of the funds that constitute a system designed to maintain the status quo among the main reservoirs of votes of the two main Spanish political parties.

The autonomous communities led by the PP maintained the party line, while the faint protests from the PSOE and the disinterested remarks of the Basque Country and Navarre, thanks to the comfort of their unique economic agreement, allowed the PP to substitute an overhaul of the financing system with the Autonomic Liquidity Fund (FLA).

Against a backdrop of debt markets that have shut down, only the state, which collects major taxes and has real legislative powers over them, is able to borrow. Thus, it provides resources, liquidity, sparingly. It does so without killing the patient, leaving them grave yet stable, but with episodes in which the patient’s heart stops and businesses close, the self-employed go to the wall and tensions rise in society.

With the economy showing signs of recovery, the PP government is now initiating reforms to the financial system, but without changing its strategy.
The events of recent years have led to a crude form of debate and many people admit that Spain’s finances cannot afford two agreements like the Basque Country’s in the non-existent case that the PP government were to suggest it to Catalonia. Nonsense. Resources are finite and they emanate from Catalonia, the Balearic Islands and Madrid. In the latter case this is due to ‘economic doping’, resulting from the effect of a capital of a state where bankrupt toll roads are bailed out and Madrid’s major services are provided by the state. Where crony capitalism reaches a high level of intricacy.

ARA has visited the community with the greatest influence of the public sector in its economy and which receives the most resources. It is 14th out of a total of 15 in terms of its contribution to the system, while it ranks first in terms of the funding it receives, adjusted for the cost of living differential. Extremadura contributes 1,537 euros per capita and receive 3,324.

The current system of funding perpetuates the existing inequalities in spite of continual efforts to overcome them and fails to nurture the economic engines of growth.

To attend or not to attend the negotiations?

Operation Dialogue, consisting merely of gestures, tries to make it look as if it is the Catalan side which has no desire for dialogue, while the political sparring is done for the benefit of the international community. But the reforms and arguments arrive too late. Catalan public opinion is far from being able to accept a cosmetic overhaul of the regional funding system. The presence of the President of the Catalan Government at the Conference of Presidents does not make sense at the present time. Catalonia must demand bilateralism at the highest level. But it must also participate in the negotiations that decide the fate of taxes which are paid by Catalans and collected by the Spanish state. Even when it is convinced it is a waste of effort, since it is largely a matter of trust and institutional loyalty.

Despite the tensions due to a lack of resources, the economic situation does not account for the political process that Catalonia is experiencing, even though certain parties seek to simplify the situation and reduce it to a purely monetary issue. Catalonia is not the caricature to which it is reduced by the majority of the Spanish political system, which uses it as an excuse for not taking complex, long-term decisions which respect Catalonia’s identity, language and sovereignty. The reform of the financing model ought to be carried out in the meantime, but it comes too late.

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