Make policy on credit, avoiding the present at the cost of rapidly mortgaging the futurehas become the political style manual of the State of the Autonomies. This 2022, regional governments need to lend them 50,579 million euros to stay afloat, balance their budgets and continue to function the thick public machinery they pilot. It is 916% more than twenty years agowhich gives an idea of the speed and dimension of this financial drift.
Over the decades there have been –and continue to be– notable differences between the excesses that have been incurred by some regional executives and others. In any case, the aggregate of the State of the Autonomies draws a picture full of growing red numbers, raffled with increasingly thick loans.
According to the latest budget accounts of the seventeen regional governments, compiled by ABC, this year the regional network will face 21% of all its budgetary spending on credit. In Catalonia it will be much more, 30.1% according to the forecasts of the Catalan Generalitat, the absolute leader when it comes to using a ‘credit card’ to govern autonomy. He is followed by Castilian-Manchego government of the socialist Emiliano García Page, who this year plans to face 28.4% of his budget expenditure on credit. The third in the ranking is the Valencian Generalitat of the also socialist Ximo Puig, with 28.2%. The other four with more spending on credit are the governments of Murcia Lopez Miras (PP) and others three socialists: Concha Andreu from La Rioja, Javier Lambán from Aragon and Francina Armengol from the Balearic Islands.
For years, the central government has become the privileged lender of the autonomies, in the emergency ‘bank’ that Moncloa became when, back in 2012, Rajoy devised the Autonomous Liquidity Fund (FLA). He did it to avoid the bankruptcy of communities in a critical state, in the case of the Catalan Generalitat, discredited in international debt markets and unable to finance itself after many years of excess public spending and sovereign dalliances.
Catalonia, leader in financial hole
this 2022, Of the 50,579 million of credit money needed by the autonomies, 13,668.9 are required by Catalonia and 8,017.24 by the Valencian Community. It will suffice for the Madrid government of Isabel Díaz Ayuso to subscribe debt for just over 4,400 million euros. The disparity is evident when looking at the regional aggregate in detail: the Community of Madrid is the least indebted in terms of GDP, 14.8%, a figure that contrasts with the 47.8% of the Valencian Community, 36.5 % of Castilla-La Mancha or 36% of Catalonia, according to the latest live debt data certified by the Bank of Spain at the end of the last year, 2021.
With more or less intensity, all regional governments are tied to recurring debt. The financial hole is getting bigger, and the receipt of that debt swallows a growing portion of the regional budgets. The two great public services of Health and Education depend on them, but also an extensive and expensive network of the most varied entities, bureaucracy, organizations, foundations or public companies accustomed to red numbers. The list is as expensive as it is long.
Between the loans that they have to repay this year and the interestthis 2022 the set of autonomies have to face a ‘receipt’ of 41,964 million euros, according to their latest forecasts. As they do not have their own resources for such a disbursement, those 41,964 million have to be borrowed, and they will also have to borrow several billion more additionally to cover the deficit generated by the rest of the operating expenses of the autonomous public sector.
The habit and its risks
The new debt is always greater than the one that is amortized. That is why the indebtedness grows without stopping. This year, of the 50,579 million euros of new debt that the autonomies plan to subscribe, only 38,700 will be dedicated to paying off living loans. So the net indebtedness of the State of the Autonomies is expected to increase by around 12,000 million in twelve monthsUnless forecasts improve.
This dynamic is repeated year after year, systematically. And when there is a crisis, with more intensity, as happened with the one in 2008 and as has happened again with the Covid crisis, which triggered health spending and plummeted tax revenue. This has forced the central government to inject funds into the autonomies in the form of direct subsidies in large amounts, which has prevented them from having to trust everything to debt. This has prevented them from being burdened with exorbitant loans in the pandemic.
In 2002, the financial indebtedness of the autonomies was close to 46,500 million euros. At the end of 2012 it had climbed to 189,183 million, and on December 31 it amounted to 312,586 million. At the end of this year, it will far exceed 320,000 million, according to the budget forecasts currently managed by the 17 regional governments.
Has a system risk zone been entered? Is this drift sustainable? ABC has asked the two big parties, PP and PSOE. Both defend the autonomous model, but their accounts see them very differently. The deputy spokesman for the PP in Congress, Mario Garceswho is a Treasury inspector, state controller and auditor, affirms that it is necessary to “apply prescriptions of containment and rationalization of regional unproductive spendingand check the update system of the financing model of the autonomies”. He advocates a State pact in this sense, between the Government and the group of autonomies, which is based on a new financing scheme, but which also commits the regional executives to a reduction and optimization of spending.
Garcés is blunt in stating that “the volume of debt that has accumulated is excessive for the autonomous communities.” “Proof of this – he indicates – is that in the six years from 2012 to 2017, the central government lent the autonomies resources equivalent to 35.4% of their total resources.” The levels of deficit and debt of the State of Autonomies affect “the sustainability of the entire financial system in Spain,” warns Mario Garcés.
However, from the PSOE, its federal secretary for Economic Policy, Peter Casares, sees the panorama with optimism. He praises the Government of Pedro Sánchez for how it has increased the subsidies to the autonomies to mop up the cost overruns of the Covid and opposes it to “The recipes for cuts and austerity that did not work in the past” –critical allusion to the stage of Rajoy’s PP–. The optimism of the socialist Casares also leads him to proclaim that “the public deficit and debt are being reduced and this means that Spain is correcting its imbalances, a trend that will continue in the coming years.” He boasts that the autonomies closed 2021 “with budget balance, an unprecedented fact and that it was achieved without cuts.” And he predicts that “Spain will continue to grow and create jobs in the coming years”, which “will allow us to continue reducing the public deficit without the need to deteriorate our Welfare State”.
The disparity of the vision that the PP and PSOE have in this regard is evident, while independent experts urge consensus solutions. It is the case of Cándido Pérez, partner in charge of the Infrastructure, Transport, Government and Health area of the consulting firm KPMG in Spain, for whom “the underlying issue is that the regional financing system has been pending reform for almost 10 years and there is no broad consensus on how it should be carried out”. A reform that, he underlines, must flee from partisanship and be based “on a detailed technical analysis.”
George is Digismak’s reported cum editor with 13 years of experience in Journalism