Catalonia and the Valencian Community account for almost half of the regional debt, while Madrid barely reaches 11.5%

The PSOE-ERC agreement to invest Pedro Sánchez has brought the problem of regional public debt to the forefront: 327,346 million euros, which represent 23.2% of the national GDP and which are distributed very unequally between territories.. 44% of all regional liabilities are concentrated in just two autonomous regions: Catalonia and the Valencian Community, where 27% of the country's population lives.. This is reflected in the latest public debt balance sheet published by the Bank of Spain in October.

The Catalan Generalitat, with a liability of 86.8 billion euros, is the autonomous Executive with the most debt in all of Spain. The second place is occupied by the Valencian Generalitat, which has a debt of 57,246 million euros, while Andalusia (38,018 million) and the Community of Madrid (37,658 million) appear at a certain distance.. On the other side of the spectrum, there are La Rioja (1,760 million), Navarra (3,175 million) or Asturias (4,376 million) with more modest figures.

However, these amounts do not reflect well the capacity of regional governments to return what they owe.. To measure the sustainability of this debt, it must be compared with the size of the economy of each territory, as established by European and Spanish fiscal rules.. If we measure debt over GDP, the autonomies with the greatest pressure are the Valencian Community (43.5% of GDP), Catalonia (32.4%), Castilla-La Mancha (32.1%) and Murcia (32.1% ). On the opposite side, the communities with the best financial health are the Basque Country (13%), Navarra (13.3%), Madrid (13.7%) and the Canary Islands (14.1%).

These great territorial inequalities make forgiving regional debt in the hands of the State – as the PSOE has promised to ERC in Catalonia and the BNG in Galicia, although it is also extendable to other territories – especially dangerous.. Not all governments have the same need and nor will they benefit in the same way.

Firstly, because the weight that the State has in the debt of each region is very different. In communities such as Cantabria, Murcia, the Valencian Community and Catalonia, the central administration is the creditor of more than 84% of the regional public debt. Altogether, 60% of the regional debt is in the hands of the central State.

However, in territories such as Asturias, the Canary Islands or Castilla y León, the weight of the State in the regional debt does not even reach 20%.. In fact, autonomies such as Madrid, the Basque Country or Navarra finance all their debt in the markets and do not owe anything to the Treasury.. Although negotiation sources insist that all communities will have the right to debt relief, including Madrid.

The State, 'bank' of the CCAA

To understand how the State became a kind of bank for the autonomous communities, we must go back to the great financial crisis of 2008.. When Spain entered recession, tax revenues plummeted—tax collections sank—and expenses skyrocketed—especially on social benefits.. As a result, the public deficit skyrocketed.. Something that happened at all levels of administration, also in the autonomies.

To cover this hole in the accounts, Spain was forced to go into debt. But when the financial crisis mutated into a debt crisis in the eurozone, the markets were closed for the autonomies.. Many could not find anyone willing to lend them money under acceptable conditions.. To avoid the bankruptcy of the regional sector, the Government of Mariano Rajoy created the Regional Liquidity Fund (FLA). A mechanism through which regional governments could borrow from the State to finance themselves. In exchange, their accounts would be closely monitored.

Subsequently, the FLA would end up being integrated into the Financing Fund for Autonomous Communities, which has continued to provide liquidity to the autonomous governments.. This mechanism has been maintained in the years of recovery until today.. During the pandemic, the communities did not have problems because the State assumed the bulk of the increase in spending caused by the health emergency.

However, the situation that generated the financial crisis has not been reversed and the majority of autonomies continue to depend on the State to finance their deficits.. So much so that, in the communities as a whole, the level of debt in the hands of private creditors is even lower than that recorded when the FLA began operating in 2022.. Since 2012, financing needs have been covered by the State in most cases.

With such a high public debt, autonomies such as Catalonia or the Valencian Community find it impossible to finance themselves in the markets even today. That the State assumes part of the debt could help improve their situation and accelerate the return of these communities to the market. However, forgiving debt can produce a comparative grievance between territorial governments that have resorted to the State to finance their deficits and those that have done so on their own.

In this sense, the examples of Catalonia and Galicia are illustrative.. The agreements that the PSOE has signed with ERC and BNG estimate the state debt that would be forgiven at 20%. However, although the percentage that would be forgiven would be the same in both cases, the effects it would have for each of them would be very different.. Forgiving 20% of Catalonia's liabilities with the State would allow the Generalitat to reduce its total debt by 16.8% (14,622 million). However, a 20% haircut in Galicia would barely serve to reduce the Galician debt by 4.5% (552 million).

The agreements reached by the PSOE do not clarify what percentage of the regional debt with the State would be forgiven in each community. In fact, negotiation sources point out that the proportion does not have to be the same in all territories and remember that the forgiveness is linked to the impact that the financial crisis had in each case.

But, no matter how much the percentages vary, there are differences that are insurmountable.. For example, even if Castilla y León were forgiven all of its debt to the State, its total liabilities would be reduced by 14.6%. A figure lower than the benefit that the Valencian Community would obtain with a 20% reduction in its state debt.