WHILE UNCERTAINTY still hangs over the precise nature of EU assistance to Spain’s banks, the prospect of an overall bailout of the Spanish state is surely being brought closer by accelerating unrest among the country’s autonomous governments. Spain’s “State of Autonomies” was built four decades ago, as Spain transitioned from dictatorship to democracy. Today, 17 autonomous governments control 40 per cent of Spanish national expenditure. The problem is that many of them have not controlled it very well.
The property bubble that triggered Spain’s banking crisis has been blamed, with some justification, on incompetent management by the previous Socialist Party (PSOE) national government, decisively ousted by Mariano Rajoy’s conservative Partido Popular (PP) last November. However, autonomous regions long governed by the PP are also deeply implicated in property speculation and dubious banking practices. Brussels suspects that many regional governments are much more indebted than is currently acknowledged.
To counteract these suspicions, prime minister Rajoy has been attempting to force the autonomous governments to drastically reduce their budget deficits. He has met resistance from the PP’s own regional barons, who have objected that Rajoy is imposing much tougher deficit limits on their administrations than Brussels is imposing on Madrid. This has not stopped some of them requesting emergency financing from central government, raising fears of a bailout within a bailout.
Meanwhile, Catalonia, always one of Spain’s most prosperous regions, has hinted strongly that it needs a bailout. But its first minister, Arturo Mas, insists that this is only because Madrid has created an artificially large Catalan deficit by withholding funds long due to his administration. So while Catalonia asks for assistance with one hand, with the other it is demanding a new pact to give it fiscal independence from Madrid. This week, the Catalan government took the drastic step of announcing that it could not pay health workers their July salaries, because it had to prioritise paying off bank debts. Some see this as a cynical nationalist ploy to force Rajoy to engage with Catalan demands, others say the coffers really are empty. Either way, this regional turbulence will not help Madrid’s efforts to avoid further EU intervention, while Spain’s troubles will, as always, fuel pro-independence feeling in Catalonia and the Basque Country.