Regional deficit plan approved despite dissent by Madrid and Catalonia

The Fiscal and Financial Policy Council (CPFF) has approved a controversial à la carte deficit-reduction plan for the country’s regions that reflect their particular circumstances despite objections by a number of them.

The program, which has divided the ruling Popular Party (PP) regional barons more than any other policy of Prime Minister Mariano Rajoy, calls for different deficit-reduction targets for different regions. In the case of Valencia the figure is 1.6 percent, while for Extremadura it is 1.0 percent, with an average of 1.3 percent across all the country’s 17 regions.

The regions’ shortfall in 2012 was 1.7 percent of GDP, 0.2 points above target. The regions have struggled to meet the targets set for them. They have been forced to introduce draconian cuts to spending on education and health and have suffered protests and the resulting political fallout.

Under the European Union’s Stability and Growth Pact, the European Commission has agreed a target for the shortfall in all of Spain’s public administrations for this year of 6.5 percent of GDP, down from 7.0 percent last year. This figure includes a deficit for the regions of 1.3 percent of GDP, 1.4 percent for the Social Security system and 3.8 percent for the central government, a figure that had already been reached in the first six months of the year.

Given that the country is now in the grip of its second recession in four years, the Commission has also agreed to allow Spain more time to bring its deficit back within the 3 percent ceiling set by the EU.

Madrid, Catalonia, Asturias and the Canary Islands voted against the plan, which was approved Thursday by the CPFF. The finance commissioner of Extremadura, whose premier José Antonio Monago of the PP has been one of the most vocal opponents of an à la carte arrangement, abstained in the vote on the plan drawn up by Finance Minister Cristóbal Montoro.

Extremadura posted a deficit last year of 0.7 percent of GDP. Montoro said Thursday that allowing the region more margin this year was justified by the fact that last year the region’s coffers were swelled by one-off revenues.

The finance commissioner of the region of Madrid, Enrique Ossorio, said: “The agreement favors regions that failed to reach their targets and punishes those that did.” The target set for Madrid was 1.07 percent of GDP, the same as last year.

Despite Catalonia being granted a reduction in its target for this year to 1.58 percent of GDP, the northwest region’s financial commissioner, Andreu Mas-Colell, complained that the agreement was a “triumph” for the regions in the central belt of the country against those on the Mediterranean coast.

After the meeting, Montoro tried to calm the waters. “I ask the regions not to look on each other in mistrust,” he said. “The responsibility and the duty of the central government is that of coordination and the regions have to attend to their own tasks rather than looking at what their neighbors are doing.”