The Catalonian regional government has filed a request for help warning Madrid it will not accept any condition linked to such rescue. For a Cabinet in desperate need of cash to keep running its services, the flat refusal to take on board any tip seems a bit reckless. But it has a trump card in its bid to soften Madrid resistance. It is threatening to trigger a full fledged confrontation on the so-called fiscal pact aimed at keeping reducing to a minimum amount the tax receipts share channelled to central government.
This open challenge puts Madrid at odds fearing both an open rift with Catalonia and the danger other regions might take a similar stance. With forecoming elections in two regions, due to be held by the end of October, losing the Galician stronghold would deliver a severe blow to the austerity policy enforced by government.
The nagging thing is that Spain follows the same line at European level. It intends to get money for free, escaping from the humiliation associated to receiving orders from Brussels. So it finds itself lacking the moral authority to sermon others on this issue.
Does it make any sense to be rescued on an unconditional basis? There are good reasons to reject such a claim as it only leads to put budgetary discipline into jeopardy. Taking into account the daunting efforts to be accomplished, it doesn’t help at all to face voters on your own, with no one to blame for the damage inflicted.
Curbing regional expenditure, more than half of total spending, seems vital for putting overall deficit back on the right track. Especially considering that its deviations stood over the last years as the main blocking hurdle in reducing sharp budgetary imbalances. Back in 2009, regional finances were buttressed with a lump 2.5% GDP gift, plus an increased share in taxes. A couple of years later their accounts emerge in utter shambles.
Spain will never ensure fiscal consolidation unless it reins regional and local authorities’ finances. The Catalonian challenge comes in a delicate moment when Madrid is at pains to convince markets and partners it can be up to the job of curbing excessive deficit. Any further doubt might impel those at command in Euroland to act swiftly preventing Spain from faltering. They would undoubtedly impose it a solid rescue package laden with stringent conditions.
The Spanish budgetary record for this year fails by far to keep in line with commitments, money advanced to regions offsetting savings achieved through painful cuts and adjustments. Madrid is thus forced to impose a stiff discipline on regions, if only to avoid receiving a harsh treatment from Brussels. Should it prove unable to cut short the Catalonian rebellion on board, it risks losing control over ensuing events.