Austerity forcing regions to reject Madrid's power


ANALYSIS:TWO RELATED crises, with striking parallels, are gripping Spain at the same time.

The first is familiar from daily international headlines. Madrid urgently needs substantial EU help to shore up its shaky banking system, and to reassure sceptical bond markets to lend to the country at viable rates. But it also desperately wants to avoid the harsh conditions that come with a full-scale EU-European Central Bank- International Monetary Fund bailout.

The second crisis is less visible abroad, but could have equally far-reaching consequences. The “State of Autonomies”, the system whereby 17 autonomous regional governments administer key public services, including education, health and justice, has been the basic structural glue of Spanish democracy for the last three decades. It now appears to be coming unstuck.

There is a curious symmetry between the two crises. While Brussels (with Berlin) seeks to impose tough conditions for assisting Spain, Madrid is attempting to impose even tougher conditions on these autonomous governments.

The regions are striking back, however, and are increasingly strident in their resistance. In some cases they are questioning the constitutionality of government measures. The Catalan first minister is threatening a plebiscite on independence. Others see the central government’s strategy as a devious attempt to make local politicians pay the political price of Madrid’s own deeply unpopular cutbacks and tax hikes.

The autonomous governments are particularly sore because Madrid has recently won an easing from Brussels of its own public deficit targets, but continues to tighten the screws on regional administrations. They also feel cheated because the central government’s coffers will swell from last week’s VAT rise, but will not contribute a cent to deeply indebted local exchequers.

What is particularly disturbing for the conservative Partido Popular (PP), in power in Madrid, is that opposition to central government policy has now spread beyond the usual suspects. There is nothing new in hostile comments towards Madrid from Catalan and Basque nationalists, and it is predictable enough that regions like Andalusia and Asturias, still controlled by the Spanish Socialist Party (PSOE), will oppose austerity coming from the right.

Now, however, two PP-governed regions have refused to support the imposition of a severe reduction on their 2012 deficit. This was an unprecedented act of defiance against their own beleaguered national leadership. It is widely believed that the Madrid government had to work very hard to prevent Galicia, home base of the prime minister, Mariano Rajoy, from joining them.

Last week, the PP secretary general, Dolores de Cospedal, felt it necessary to deny that a “rebellion” by its regional leaders is under way. Like so many denials by PP spokespersons in recent months, her statement was interpreted as confirming the precise opposite of what she was saying.

Spain’s complex jigsaw of autonomous regions has its origins in efforts to placate rising pro-independence movements in the Basque country and Catalonia in the 1930s. The 1936-1939 civil war, and the ferociously centralist right-wing dictatorship that followed, put an end to that experiment for 40 years.

During Spain’s difficult transition to democracy in the 1970s, it became evident that the Basques and Catalans, at least, had the leverage to gain significant powers of self-government. Then other regions, some with very little tradition of distinct cultural identity, began to demand “coffee for everyone”.

The dramatic state-wide devolution of powers that followed has been praised as a deepening of local democracy, and even as the source of Spain’s rapid modernisation and increasing prosperity over three decades. Others argue that, in many regions, it has been efficient only as a facade for preserving caciquismo, the system of political manipulation and economic corruption by local “barons” that had long afflicted many parts of the country. Both arguments carry weight. Many of the most successful countries in the world, including Germany, the US, Brazil, India and Australia, devolve a great deal of power to regional or state governments of one kind or another. Some of Spain’s post-dictatorship dynamism undoubtedly derives from local reinvigoration and initiative, based on the new funding available from the autonomous governments.

In both the Basque country and Catalonia, despite ongoing conflicts, strong cultural identities were consolidated around world-class economies.

On the other hand, graft and abuse of power have been rife in many autonomous governments. There have been notorious cases of infrastructural vanity projects.

The most egregious example is Castellón airport. It was opened last year by the local PP leader Carlos Fabra, and the then first minister of Valencia, Francisco Camps. The internal financial crisis in this autonomous region has been compared to that of Greece.

To this day, no aircraft has used the airport’s extravagant facilities – unless one includes the one sculpted above a massive statue of Fabra himself, in a grandiose gesture worth of Kim Il Sung.

Meanwhile, many in Spain, and in Brussels, fear that hidden deficits in some of the autonomous governments’ accounts may be as destabilising as the black holes in the Spanish banking system. This explains the very energetic recent attempts by the Spanish finance and public administration minister, Cristóbal Montoro, to whip them into line by insisting on a very tight public deficit target of 1.5 per cent for autonomous governments this year, reducing to 0.1 per cent for 2014.

He is already imposing a central government audit on eight of them. He has warned of “intervention” by Madrid, analogous to intervention by the troika in bailed-out EU member states, on any that do not put their house in order fast. The PP government fears, with some justification, that if it does not send in invigilation teams to recalcitrant regions – colloquially known as “the Men in Black” – then Brussels will.

But all these measures are sparking the aforementioned regional rebellion, and it is hard to see how this impasse can be broken. Nevertheless, some regions are in such dire straits that they are appealing to Madrid for internal bailout funds, though they fear the further conditions the government will set. Valencia was forced to take this step last Friday, and Murcia followed suit yesterday.

Hard-right centralists in the PP see this crisis as a long-desired opportunity to dismantle the whole autonomy system, despite the many local benefits the party has garnered from it. However, that possibility is in turn pushing increasing numbers of Basques and Catalans towards the independence option. This reawakens the spectre of the break-up of Spain, the very spectre the “State of Autonomies” structure was supposed to have laid to rest forever.

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