Business | Economy

Catalonia bailout request seen fuelling independence drive

Madrid orders regional governments to slash deficits but northeastern region refuses to submit to any conditions

  • AFP
  • Published: 14:47 September 2, 2012
  • Gulf News

  • Image Credit: Reuters
  • People walk past a shoe store in a shopping district in Madrid. Spain’s central government has ordered the 17 regional governments to slash their combined public deficit to 1.5 per cent of economic output this year, from 3.9 per cent in 2011.

Barcelona: Catalonia’s plea for a financial rescue from Madrid could end up strengthening the proud region’s drive for more independence from Spain.

The government of the northeastern region, unable to meet its debt repayments alone, asked Madrid on Tuesday for 5 billion euros (Dh23.08 billion) from a 18-billion-euro fund for troubled regions.

But Catalonia, which has its own distinct language and is responsible for one-fifth of Spanish economic output, stressed that it would not submit to any conditions.

“It is a bit contradictory that a government request a bailout from a state that in some ways it wants to separate from,” said philosopher Josep Ramoneda, former director of Barcelona’s Contemporary Culture Centre (CCCB).

The Catalan government’s request for aid puts it in a position of “manifest weakness” before the central government because “nobody gives anything without conditions”, he added.

Spain’s central government has already ordered the 17 regional governments to slash their combined public deficit to 1.5 per cent of economic output this year from 3.9 per cent in 2011.

To meet this target Catalonia and the other regions have had to make steep spending cuts to social services like education and health care, sparking noisy street protests.

But Catalonia has long argued that it pays more into Spain’s communal tax pot than it receives.

It says the bailout is simply a case of getting its money back and this is why it rejects any conditions attached to the aid.

“This money is ours and we are not going to say thank you because they loan us money that belongs to the Catalan people,” Catalan government spokesman Francesc Homs said this week.

The Catalan government, headed by the conservative nationalist CiU party, argues that under Spain’s fiscal system, which redistributes tax revenues from rich regions to poor ones, it receives 17 billion euros less each year than it pays in taxes.

With an annual gross domestic product of around 200 billion euros, Catalonia has a public debt of over 40 billion euros, much of it built up since the collapse of a property bubble in 2008 caused tax revenues to plunge.

Catalonia’s austerity measures allowed it to save 1.85 billion euros last year but it is facing debt repayments in the second half of 2012 of 5.75 billion euros, which it can’t meet on its own.

Last month, it was forced to suspend the payment of subsidies to hospitals, old age homes and other social services because of a lack of liquidity.

Homs warned on Wednesday that if Catalonia does not receive the financial aid it requested from the central government by the end of September, the region will have “major problems” making payments.

Ramoneda said the “extreme economic situation” would reinforce Catalan demands to have its own treasury or become an independent state.

“The interpretation that will be made is that all of this is the result of Catalonia not receiving adequate funding and that things would go much better if it went its own way,” he said.

The pro-independence party ERC, which strongly opposes the demand for financial aid, has already started making this argument.

“An independent Catalan state would not need to ask for these types of humiliating credits,” said Alfred Bosch, a lawmaker representing the ERC in Spain’s national parliament.

The Catalan National Assembly, a platform that brings together groups that want Catalonia to be an independent country, plans to use this argument to draw people to pro-independence rally next month.

The march will take place on September 11, a local holiday in Catalonia marking the 1714 Siege of Barcelona defeat during the War of the Spanish Succession that led to the region’s loss of independence.

“We already expected the march to draw a huge crowd before the bailout was announced,” said the head of the Catalan National Assembly, Carme Forcadell.

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