Regional rebellion against debt ceilings

Concerned by the imposition of debt ceilings that they consider to be impossible to fulfill, the authorities of a number of regions are up in arms against the unprecedented austerity treatment prescribed by the conservative government of Prime Minister Mariano Rajoy, although not all of them for the same reasons. While Catalonia beforehand rejected the plan put forward by the central government for reasons that essentially have to do with pressurizing Madrid into agreeing to a pact that concedes fiscal autonomy to the region, this time around it was Andalusia that objected to a debt ceiling that will impact the policy lines of the Socialist-United Left regional government. The Canary Islands and Asturias also voted against the imposition of caps on debt levels.

The dispute stems from the fact that the Finance Ministry in May approved plans to restore budget stability in the regions that in the case of Andalusia set a debt ceiling of 15.1 percent of GDP for 2013. But the central government last Tuesday reduced this cap by two percentage points on the basis of a model for determining debt levels that uses the situation as of the end of last year as its base. The change of criteria restricts the possibilities of the Andalusian government introducing an economic stimulus package and even also in meeting current spending, as can be gathered from the remarks of the regional premier, José Antonio Griñán, who believes it will be impossible for the region to draw up its budget for 2013 under these conditions.

Technically, the treatment received by Andalusia is no different from that of the rest of the regions, given that the debt ceiling has been calculated using the same formula for everyone. But it applies the same treatment to regions that find themselves in different situations: those that are most indebted can take on more debt, while those regions that have managed their accounts with more austerity will be allowed to issue less debt. Thus, the debt ceiling for Andalusia has been lowered from 15.1 percent to 13.2 percent, while Catalonia’s has been increased from 21.3 percent to 23.5 percent, Valencia’s from 22.4 percent to 23.0 percent and Castilla-La Mancha’s from 18.9 percent to 21.4 percent.

A policy of fiscal rigor is unavoidable. The Rajoy government is also in the grip of the obligations imposed by the European authorities. But in the same way that the central government rightly complained that Spain needs greater flexibility than other countries in Europe in better conditions, the Rajoy administration cannot expect the most populated region in Spain, and one that is suffering from very high unemployment, to cut public spending without taking into account the consequences of this. It is also surprising that Finance Minister Cristóbal Montoro has announced his decisions without previous consultation. This goes against all of the calls that have been made by the more moderate wings of the right and the Socialist Party for the economic and financial crisis to be handled with the greatest amount of consensus possible, and shows that Rajoy is losing his grip on the regional system.