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Preaching by example

The Madrid region’s rebellion over deficit sharing conceals the Finance Ministry’s shortcomings

Madrid -

The noisiest aspect of the controversy on the sharing-out of deficit-reduction objectives between the various administrations, national and regional — à la carte in 2013, and linear for 2014 — is the Madrid regional premier’s refusal to endorse the formulas designed by Finance Minister Cristóbal Montoro.

The premier of Madrid, Ignacio González, believes that as it stands the agreement fails to take into account the level of the region’s economic activity and the income generated by its inhabitants, and is resisting the finance minister’s attempts to make the regional government bring back the wealth tax in order to offset the cutbacks it has suffered in its income of around a billion euros.

Setting aside the details of this confrontation (noisier than usual, because it involves political leaders who belong to the same ruling Popular Party), the so-called à la carte deficit plan and its supposed discriminations has a short future ahead of it.

In Europe, the widest margins and the most flexible timetables are being granted to countries that have been failing to comply with deficit-reduction objectives, such as Spain, not to Finland, Luxembourg and Germany, who do not need them.

The underlying question lies more in the national government’s shaky credibility in proposing to act as an arbiter in an area where its own performance has not been up to scratch. In the first half of this year, it has already hit the deficit target it had set itself for the full year of 3.8 percent of GDP. And in 2012, among the various administrations both national and regional, it was the one that had achieved the least in terms of reducing the deficit of the country.

Regional premiers such as those of Andalusia and Catalonia had solid reasons, then, for demanding a target for the regions as a whole of 2.2 percent, a third of the total 6.5 percent ceiling to which the European Commission agreed for Spain, rather than the initial 4.5 percent, in recognition of the fact the country remains in recession.

More debate needed

The fact is that the regional governments account for no more than about a third of public expenditure in Spain. The national government’s decision to limit the regional deficit-reduction margin to a Spain-wide average figure of 1.3 percent is the act of a judge who is also an interested party.

Of course, in one very substantial aspect the Finance Ministry’s doctrine of setting a stiffer target for this year makes sense. Ongoing deficit-reduction efforts are necessary, hence the logic of a slightly tougher objective for 2013 than for the previous year.

Even so, the national government would do well to preach by example, since actions speak louder than words. In its plans for further reining in the deficit for this year, the Finance Ministry has attributed rather more latitude to the administrations for which it is responsible — the central government and the Social Security system — with a deficit of 5.2 percent, compared with 5.08 percent last year. This is what most convincingly points to the need for a more serious debate on the issue.

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