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Bailout and grievance

The Catalan regional government appeals to the Liquidity Fund with an assertive political claim

Five harsh adjustment plans with their budget cutbacks have not brought Catalonia’s finances out of the red. On the contrary, the cutbacks have aggravated the crisis, and the collapse of revenues has driven the regional government, presided by Artur Mas, into a financial corner where it has called for a 5.023 billion euro bailout from the Regional Liquidity Fund to pay debts falling due in the next few months.

The fact that in July it suspended payments to some health and educational facilities shows that the coffers of the Generalitat (Catalan regional government) were nearly empty. Its total debt amounts to some 42 billion, the largest of any Spanish region. Early in August, Mas admitted he was not sure of being able to meet payments for this month.

Top members of Mas’s CiU party have accompanied their recognition of this grave situation with strong doses of assertive Catalan-nationalist gesticulation, for Catalan consumption, shrugging off their own responsibility and laying the blame on Madrid. Mas announced a campaign for the “fiscal pact” — demanding for Catalonia a tax-sharing model similar to that of the Basque Country, where taxes are divvied up between regional and national government at the source, before they enter the coffers of either. For weeks now, CiU has been stirring up Catalan public opinion to this end.

It is odd to request financial aid, while at the same time agitating a political conflict that hurts the image of Catalonia and Spain in the financial markets.

But Mariano Rajoy’s national government, too, has much to do and to explain. In July it created this fund for “financial assistance” to the regions, endowed with 18 billion euros, the conditions and mechanisms thereof being left vague, creating a situation of uncertainty that must be ended soon. Valencia and Murcia have announced they will resort to the fund in the next few weeks.

Top figures in the Generalitat have emphatically said that Catalonia will not accept political conditions in the implementation of the bailout. Exactly as did the Spanish government, saying it would not accept political conditions imposed by Brussels for the EU financial bailout. However, both bailouts imply obligations that condition expenditure. The national Budget Stability Law, for which CiU voted, established that financial aid would be conditional upon fulfilment of stability objectives, and that the national government might impose adjustment plans to that effect.

CiU may now attempt to make the national Finance Ministry’s “men in black” the symbol of all the Catalan-nationalist grudges it nurses, but the Catalan government has never been so dependent on the national one for its daily functioning. Rajoy may exploit this weakness in favor of his party’s craving for re-centralization, but this would be a serious mistake. The fund must serve to help the regions climb out of the hole, and under conditions of stricter financial supervision, but never to alter the rules of the game in the regional government system.

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