La premsa internacional s'aboca a Catalunya

Deficits in Regions Compound Fears About Spain

Raphael Minder

New York Times 31.03.2011

The city of Barcelona recently finished building four care centers to house 154 mentally and physically disabled people.

Instead of opening, however, the centers, which were built at a cost of €14.5 million, or $21 million, are among 10 social and health infrastructure projects in the city that have been mothballed. The regional government of Catalonia, of which Barcelona is the vibrant, seaside capital, does not have the funds to operate them.

Despite its reputation for economic dynamism and the international allure of its golden beaches, Catalonia is facing a financing shortfall that has not only upset its drive toward greater autonomy from the rest of Spain, but also deepened market concerns about faltering fiscal discipline among Spain’s 17 regions.

Indeed, the failure of Catalonia and eight other regions to meet their 2010 deficit targets has helped to keep worries about Spain’s long-term financial footing alive, despite significant improvement at the national level.

Catalonia, which has traditionally been one of the wealthiest and most industrialized regions in Spain, is now among its worst performers.

Its recently elected government faces the daunting task of having to cut its budget deficit by two-thirds this year to fall back in line with targets set by the central government. At the same time, borrowing costs are rising, adding to an already heavy debt pile.

“For the general population, there has been surprise and even shock at the state of our finances,” Andreu Mas-Colell, the finance minister of Catalonia, said during an interview.

He is planning to cut public spending 10 percent this year, but still expects to have to borrow about €11 billion.

With an economy the size of Portugal’s, Catalonia accounts for 16 percent of the Spanish population, 19 percent of the country’s gross domestic product and 27 percent of its exports.

Catalonia’s €30.3 billion of debt, however, represents 28 percent of Spain’s combined regional debt pile, according to figures published in December by the Bank of Spain.

Its budget deficit reached 3.9 percent of its regional output last year, compared with a target of 2.4 percent. As a proportion of output, Catalonia now has the fourth-highest deficit and the second-biggest debt ratio among the 17 regions.

Warning of “challenges that will persist throughout this year,” Moody’s last month downgraded Catalan debt, alongside that of three other regions and the sovereign debt of Spain. The credit rating agency also cut the rating for the Barcelona city hall.

Catalonia’s difficulties are no different from those that have brought pain to the whole of Spain, with a credit crunch resulting from the worldwide financial crisis coinciding with a bursting of the real estate bubble that has left banks struggling to provision for bad loans.

Furthermore, Mr. Mas-Colell and others suggested that in the months before the election last year, governing politicians took their eye off the ball in an ultimately unsuccessful effort to keep their fragile, three-way party coalition in power.

“The fiscal adjustments that any sensible person should have seen as necessary two years ago didn’t start then, and some of them are only starting now,” Mr. Mas-Colell said.

The new Catalan government, however, has not allowed financial squeezing to undermine its push for more autonomy, from efforts to keep some ailing savings banks under Catalan control to a recent €10.5 million emergency loan to Spanair, a struggling airline based in Barcelona.

The financial difficulties have heightened the tensions that flare frequently in the decentralized Spanish political system.

Last month, Prime Minister José Luis Rodríguez Zapatero introduced energy-saving measures to offset rising oil prices that included ordering regions to cut fares on commuter trains 5 percent to encourage more use of public transport. Catalonia has led a campaign against the measures, refusing to shoulder the financial burden at a time when transport operating costs are rising.

Mr. Mas-Colell accused Mr. Zapatero’s government of setting double standards. “We get scolded in the morning for spending too much and a measure is then taken in the afternoon which has to be paid by us.”

The problem, many local commentators claim, lies not with past extravagance or mismanagement but with a national financing system that has left Catalonia contributing the equivalent of 10 percent of its G.D.P. to support poorer regions through taxes collected by the central government in Madrid.

“There is increasing recognition across Spain that the mathematics of financing regionalism don’t work out,” said Salvador Garcia Ruiz, one of the founders of Emma Initiative, an association promoting Catalan interests. “And we’re the first to agree because we’re the ones who’ve been paying for this party.”

Still, some industrialists predict that Catalonia will rebound faster than the rest of Spain because of its exposure to foreign markets.

“As an industrial hub, we got hit harder in the recession, but we also have the capacity to recover faster and benefit more from the stronger momentum of Germany and others,” said Joaquim Boixareu, chief executive of Irestal, a stainless steel company based on the outskirts of Barcelona.

In the wake of the downgrade by Moody’s, Catalonia’s most immediate concern is how to secure additional financing on affordable terms. In March, the regional government had to abandon a planned sale of as much as €500 million of debt to institutions after failing to attract sufficient demand.

“Catalonia recently borrowed at a cost that was close to Greece’s and that is not sustainable,” said Luis de Guindos, director of the Center for the Financial Sector, a Madrid-based institute run by PricewaterhouseCoopers and the IE business school. “The problem with Catalonia is not so much its bad numbers but a loss of credibility and the weak control that the central government has over the regions.”

Last October, just before being ousted from office, the Catalan coalition government sold €3 billion of bonds to its citizens. The sale met with strong demand, but also drew criticism from economists because of its pricing. The one-year bonds were sold with a 4.75 percent interest rate, on top of which the government paid a fee to the issuing banks of about 3 percent. Such generous terms set “a precedent that I would prefer not to have,” Mr. Mas-Colell said.

With municipal elections scheduled for May, his party’s austerity drive has had a direct effect on city halls like Barcelona’s, since the regional government runs services like health and education — hence the shelving of projects like those for the handicapped.

“The problem used to be that we didn’t have enough infrastructure,” said Jordi William Carnes i Ayats, Barcelona’s deputy mayor responsible for the treasury. Now, he said, there was a lack of funds to put it into operation.

The belt-tightening has extended as far as F.C. Barcelona, a soccer club idolized by most Catalans. Last autumn, a team of new directors abandoned a planned revamp of the Camp Nou stadium after concluding that the club could not afford the €300 million project, which was designed by the British architect Norman Foster.

“Barcelona wants to have the status of a capital city, but to maintain such a status, you need to spend a lot,” said François Badelon, a French fund manager who has worked in Barcelona for the past three years. “The infrastructure here is great, but I’m not sure that there are enough people using it to justify it all.”