Rajoy mulls financial deal to ease Catalonia stranglehold

Prime Minister Mariano Rajoy is weighing whether to put a brake on the Catalan sovereignty movement by offering Artur Mas a new model of financing to ameliorate the region’s economic asphyxiation, but at the risk of causing a rift within his own party.

The impasse over a so-called fiscal pact for Catalonia led to a snap election last November in which Mas hoped to win an “overwhelming majority” for independence. That majority was not forthcoming forcing Mas’s CiU into a ruling partnership with the leftist-nationalists of ERC. Now the Popular Party (PP), through the head of its Catalan branch, Alicia Sánchez-Camacho, has called on CiU to break with ERC in exchange for Madrid easing spending control over the region.

Rajoy and Mas met in secret last Thursday to hammer out their differences. As things stand, Catalonia is obliged to find cutbacks of over four billion euros to meet the government’s budget deficit target of 0.7 percent of GDP for the current year. Rajoy’s offer to ease the condition depends on Brussels’ leniency over the 4.5-percent target for the national deficit in the same period.

The PP regions that met their targets have said they will not accept such a move

Rajoy, Deputy Prime Minister Soraya Sáenz de Santamaría and Finance Minister Cristóbal Montoro have offered three alternatives: First, the easing of the deficit demand, which will depend on Montoro’s imminent meeting with the EU commissioner for economic affairs, Oli Rehn, where Spain’s deficit reduction target will be discussed. The second is more contentious: a deficit target à la carte. The PP regions that met their targets last year have said they will not accept such a move while Andalusia, in Socialist hands, is seeking a similarly flexible deal for itself. In the worst of scenarios, PP administrations could rebel against the central government’s plan.

The third, however, guarantees an internal war: a deep reform of the country’s regional financing system, which would not be viewed kindly by those regions with their houses in order. Although it would fall short of the fiscal pact that led to the CiU’s sovereignty drive, it could be enough to meet Catalonia’s immediate requirements. In order to avoid the dilution of public services in better-off regions, the government is studying the German model, which limits the amount of inter-regional balancing of the national books. This would be Montoro’s primary battlefield, as in order to give more money to one region, it would be necessary to take some from another, as the national coffers have no reserves to draw upon.