Uncertain course on austerity
Deficit-cutting objectives are being fulfilled by the central government, but not by regional ones
The correction of the public deficit is an indispensable requirement if the solvency of the Spanish public debt is to be kept within acceptable limits. Investors are closely attentive to the implementation of budgetary programs, to see whether the Spanish government is complying with the adjustment plans promised in Brussels.
On Tuesday Economy Minister Elena Salgado presented the accounts of the public administrations for the first months of the year, which comply with expectations of austerity, but do not entirely dispel the sensation that the regional governments are only partially implicated in the control of expenditure. While the state showed a deficit of 0.22 percent of GDP in the first third of 2011, the regional governments as a whole showed a quarterly deficit of 0.46 percent of GDP, a rate that, in annual terms, would exceed the established limit of 1.3 percent.
The Catalan regional government, moreover, presented a budget for 2011 that doubles the permitted deficit limit of 1.3 percent, though the regional accounts do show a 10 percent reduction of expenditure. Spending cuts in health and education have caused much protest in Catalan public opinion, and rightly, but it is obvious that fiscal austerity has to be implemented in all the regional budgets, without exception.
Those who, in regional administrations or the national government, are demanding that cutbacks not be made in social expenditure, would enjoy greater credibility if, in periods of economic boom and high fiscal revenue, they had just as emphatically defended the need for primary surpluses in the budget. And they ought to demand the drastic reduction or elimination of budget headings that do not contribute to social expenditures or investment. They have plenty to choose from. The regional administrations have grown immoderately in recent years, in some cases to the point of becoming opulent courts with a prohibitive cost to the public.
For this reason, the strict deficit control that the government has to impose on itself also has to serve, in theory, to reduce the cost of the regional administrations. The task is difficult, as it cannot be carried out without a confrontation with the regional powers; and now all the more so, with most of the regions in the hands of the opposition, and the perception that the central government has lost its margin for exerting pressure. The creditors of Spanish financial assets fear that the regional debt is out of control, further compromising the stability of the country's bank balances.
The economy minister is optimistic and considers that the remainder of 2011 will see the spending excesses that the present deficits seem to project for the whole of the year rectified. We can only trust that the regional governments will fulfill their commitments, but it is not a good idea to depend on trust alone. Periodic checks and public warnings are also an indispensable instrument of public management.
