The State will forgive Catalonia a third of the debt it accumulated in the financial crisis

2023-11-05 18:43:09

The acting Government has not yet announced what the mathematical formula for which the regional debt that the State will forgive has been estimated at 15,000 million Catalonia. When this formula is made known, perhaps it will be possible to calculate the amount of debt that, if it goes ahead the investiture of Pedro Sánchezthe State would forgive each of the common regime autonomies (no, the Basque Country or Navarra) since, as the acting Government has explained, the agreement between PSOE and ERC to forgive Catalonia’s debt will be extended to the rest of the communities. -Also, for the Community of Madrid, although it does not have debt with the State, it has chosen to finance itself autonomously in the markets, under penalty of paying higher interest rates.

The reduction of 15,000 million from the Generalitat is equivalent to 20% of its debt with the State, but also 31% of what was accumulated between 2007 and 2014

Only when it is known the mathematical formula for regional debt forgiveness It will be seen if the arguments of critics (especially from the PP) fade away, who denounce that a tailor-made suit has been made for Catalonia – in exchange for ERC votes for the investiture of Pedro Sánchez – and that its extension to the rest of communities is just a disguise to justify it.

Mathematical formulas

At the moment, there is a reference that the 15 billion of euros that will be forgiven to Catalonia are equivalent to 20% of the debt of the Generalitat with the State, through the Autonomous Liquidity Fund (FLA), as expressly explained in the agreement between PSOE and ERC for the investiture of Pedro Sánchez. If, as has happened in Catalonia, the State assumes 20% of the debt of the autonomies with the State, it removes it completely would rise to 38,350 millions of euros. But socialist sources have already said that this will not be the case and that this 20% debt forgiveness percentage will not necessarily be the one that will apply to each autonomous community.

Forgiving a third of all the regional debt contracted between 2007 and 2014 would mean a reduction of about 55,000 million, which the State would absorb

There is another way of looking at it: the reduction of 15 billion from Catalonia is equivalent to 31% of the additional debt it accumulated in the previous financial crisis. If the State assumed almost a third of the debt accumulated by all the autonomies in this period, the total reduction would rise to about 55,000 million. But this, like the above, is only a calculation hypothesis, waiting to know the mathematical formula that the Treasury will apply.

Last minute change of criteria

The truth is that the text of the agreement between PSOE and ERC explains that the extension of the agreement to other communities will be made on the basis of the greater debt that the communities had to assume during the previous economic and financial crisis and, in particular, alludes to the explosion of liabilities that occurred between 2007 and 2014when they quadrupled.

Contrary to what the current acting Minister of Finance, María Jesús Montero, had been defending until now, debt relief has not been formulated on the basis of the underfinancing supported by some autonomous communities. Under this principle, Catalonia’s debt could hardly have been forgiven, since the homogeneous financing by adjusted population that the current regional financing model provides to the Catalan Generalitat is situated in the state average, above the deficient amounts that the system assigns to Valencia, Murcia, Castilla La Mancha or Andalusiawho have joined Canary Islands and Balearic Islands in the final settlement data corresponding to 2021 (the latest available).

Now, as a result of the negotiation with ERC, the Treasury has decided to take as a starting point the data on the general underfinancing that all communities suffered during the financial crisis, with income that fell due to the economic cycle and that fell very short of addressing the provision of services such as health or education (whose demands are independent of the economic cycle). This change of criteria opens the door to debt forgiveness for Catalonia and all communities.

The key: the debt between 2007 and 2014

The first question now is to determine what part of the debt corresponds to that period, which, according to the agreement between PSOE and ERC, seems limited. between 2007 and 2014.

The second question will be to determine what percentage of that debt can be forgiven by a State that, in that period, following the rules of the regional financing system, It closed the income tap to some autonomous communities that could not stop financing health and education. In that period there were years in which the autonomous communities had to accept drops in their income of more than 10% (in 2010 and 2013).

As an approximation, the forgiveness of 15,000 million to Catalonia is equivalent to 31% of the highest debt of the Generalitat between 2007 and 2014 which, as cited in the agreement between PSOE and ERC, totaled 48,700 million in those seven years. That is to say, the reduction of 15,000 million from Catalonia is equivalent to forgiving almost a third of the debt contracted by the Generalitat between 2007 and 2014 (one in every three euros of the highest debt).

Between 2007 and 2014 The total regional debt multiplied by 3.8 times, up to 237,941 million. In that period, the regional debt increased by 175,981 million. If, as has happened in Catalonia, the State assumes 31% of that amountthe total reduction would rise to about 55,000 million euros.

The 31% hypothesis: Catalonia and Valencia, the ones that earn the most

Under this hypothesis – forgiveness of a third of the debt contracted between 2007 and 2014 – Catalonia would be the community with the largest reduction (15,000 million), followed by Valencia (7,910 million), Andalusia (6.880) y Madrid, in fourth place (4,478 million). They would continue later Castilla la Mancha (3,419 million), Castile and León (2,314 million), Galicia (1,937 million), Murcia (1.918), Balearics (1.860), Aragon (1.501), Canary Islands (1.386), Asturias (847), Estremadura (715), Cantabria (618) y The Rioja (316 million) in last place.

Castilla-La Mancha, the Canary Islands and the Balearic Islands would achieve the greatest proportional relief

If the previous figures, resulting from the ‘31% hypothesis’, are put in relation to the total debt that each of these communities had at the end of 2022it is concluded that Castilla la Mancha would be the one that would obtain a greater proportional reduction: the hypothetical forgiveness of 3,419 million represents 22% of the debt that this community had at the end of 2022. At the other extreme would be Madrid (the hypothetical forgiveness of 4,478 million only represents 13% of the community’s total debt at the end of 2022). In between: Canary Islands (21,4%), Balearics (21%), Asturias (20%), The Rioja (19,6%), Cantabria (18,3%), Andalusia (18,2%), Catalonia (17,8%), Castile and León (17,37%), Murcia (16,84%), Aragon (16,77%), Galicia (16,17%), Valencia (14,37%) y Estremadura (13,92%).

Previous studies by Zabalza

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The criterion of adopting a reduction of regional debt on the basis of the greater debt incurred by the autonomous communities after 2007 has been theorized by the doctor in Economic Sciences Antoni Zabalza, who was Secretary of State for Finance Antoni Zabalza between 1991 and 1993, with a government of Felipe Gonzalez.

In his research, Zabalza finds that, since 2007, not all autonomous communities have suffered resource shortages with the same intensity (the biggest hole corresponds to Valencia), nor have they all reacted in the same way to the drop in income. The economist says that some communities, such as Madridthey went to a greater cutting their health and education benefits than others that opted for the path of greater debt, such as Valencia or Catalonia. In total, Zabalza figures at just over 150,000 million of euros is the debt that the State should forgive the autonomies (56.5% of the total) due to the fact that the resources of the financing system have not been able to cover the spending needs of the autonomies since 2007. This amount is much higher than the 55,000 million that would result from extending the 31% forgiveness of the highest indebtedness for the period 2007-2014 that results for Catalonia.