PSC offer to forgive Catalonia's debt compromises underfunded PP barons

The possibility of introducing a reduction of the voluminous debt that Catalonia has accumulated with the State through the Autonomous Liquidity Fund (FLA) in full debate on the governability of Spain has put the territories hardest hit by the current financing system on guard. The Catalan socialists, led by Salvador Illa, put on the table of the Ministry of Finance several months ago a proposal to carry out a restructuring of the Generalitat's liabilities with the State in order to advance the Catalan fiscal reserve, in theory in the side of the least favored territories by the current distribution of resources between the autonomies. Catalonia has 84% of its more than 85,400 million debt committed to the State through the FLA, the mechanism that Cristóbal Montoro invented in 2012 to provide financial oxygen to territories that could not find loaned money on the market due to imbalances in their balance.

The idea of compensating in some way these more than 71,000 million debt as part of the package to update the financing system has been revived in the context of a possible negotiation of the investiture of Pedro Sánchez between the PSOE and the Catalan independence parties, ERC and together. The World advanced this Sunday that could be one of the elements put on the board by the PSC. Sources from the Catalan socialists deny that a proposal in this sense has been formalized officially, although they admit that it is part of their agenda and that they plan to submit proposals in this regard to the Ministry of Finance before the end of this year..

The current minister, the socialist María Jesús Montero, has coldly welcomed the initiative. Asked about the matter this Monday in an interview in La Sexta, she described the debate as “precipitated”, which she frames within a negotiation of the reform of regional financing that seems increasingly difficult to address with the current composition of majorities in the Congress. Even so, Montero admitted that there is an “asymmetrical situation in different communities” in relation to the debt with the FLA, that is to say, that the liabilities with the Spanish Treasury of the territories with more financing problems are much greater than those that have more financial independence. “It is a commitment of this government and to do it in the shortest possible time,” said Montero about the reform of the system. “There are many derivatives within the system, which not only Catalonia, but other communities have also put on the table and, obviously, the Government has to address all the components of this puzzle,” he defended..

The minister was referring to the repeated requests for cancellation or restructuring of the debt with the FLA that have made the most punished autonomies. The Region of Murcia, with 84% of its 11,506 million euros of debt committed to the FLA, and the Valencian Community, with 46,274 million of debt with the State, 83% of its 55,439 million of accumulated debt, are, with Catalonia, the most dependent territories of the Treasury. Andalusia, also at the bottom in financing, has 68% of its liabilities with the FLA, 25,276 million. The three regions have a president of the Popular Party. The Valencian Generalitat has just replaced the socialist Ximo Puig by the conservative Carlos Mazón.

That the forgiveness of the debt with the FLA enters into the equation of a negotiation with the pro-independence parties (Esquerra Republicana de Catalunya is the most willing to put the fiscal dialogue on the table) commits these barons of the PP, because they can hardly refuse to the extension of a removal whose territories they have been claiming for years, always with the resistance of the Ministry of Finance.

This same Monday, to questions from El Confidencial, sources from the Valencian Ministry of Finance pointed out that, if a debt cancellation is being considered, “there is no doubt that the Valencian Community should receive the same treatment”.. “From our point of view, it is not something that should be dealt with bilaterally, but within the framework of the Fiscal and Financial Policy Council, with all the territories,” they stated from the department now directed by the independent Ruth Merino.

“Any reform of the financing system, as well as the restructuring of the debt caused by under-financing, must be led by the State, in coordination with the autonomous communities and within the framework of the institutions, and not be the subject of private negotiations with the secessionism”, added sources from the Ministry of Finance of the Region of Murcia, who recalled that the Murcian president, Fernando López Miras, has raised on several occasions the need to address the accumulated debt.

The Valencian councilor herself advocated last Friday, before the debate opened this week, for studying ways to cushion the weight of the Generalitat's debt accumulated with the State as a result of underfinancing. “I don't know if the absolute cancellation or a restructuring, there are many options,” said Merino..

The truth is that, even within the framework of an investiture negotiation, both the López Miras government and the new PP Council and Vox find it difficult to oppose the FLA debt reductions if they are extended to the most punished autonomies by the system. The claim for the forgiveness of liabilities, within a negotiation to reform the financing system, has been on the argument of the Valencian and Murcian political forces for years. The commission of experts of the Valencian Courts already raised it in the report dated December 2017. In that commission was Eusebio Monzó, current regional secretary of Finance appointed by the PP. Monzó is now the number two and strong man of the ministry with Merino.

In that document, which bears the signature of Monzó together with that of Francisco Pérez, Rafael Beneyto, José Antonio Pérez and José Ismael Fernández Guerrero, it is written: “There is not an excess of spending, but an insufficiency of income, a very relevant circumstance for assess the moral hazard of forgiveness”. And he added: “Some communities financially discriminated against in the past will drag the effects of the injustice suffered if their debts are not pooled”. As a third argument, he proposed: “It is unrealistic to think that, without any type of debt reduction, the most indebted communities can return to the market in the medium term, taking into account how the financial industry works”. A similar proposal for “reorganization” of the regional debt is the one put forward by the PSC through Professor Antoni Zabalza.

Sources from the Valencian socialists, who until the inauguration of Mazón held the Treasury portfolio at the Botanical Council, recalled that the Executive of Ximo Puig has on several occasions claimed debt relief with little success before the Ministry of Treasury. The experts appointed by the Valencian Parliament maintain that around 70% of the Generalitat's liabilities, the highest in Spain in relation to GDP, is a consequence of insufficient economic resources derived from the financing systems of 2002 and 2009, the latter expired since 2014. “In the PSPV, we have always been committed to both, with the financing reform and with a solution for the debt. It is good for the autonomous communities and for the welfare state,” they point out..