Catalonia joins the shipwreck

“Catalonia asks for bailout”, headlines El País in the wake of the announcement by the President of the Generalitat de Catalunya, Artur Mas, to the effect that the region is to request financial assistance from Madrid. One of the wealthiest Spanish regions, Catalonia is also the most indebted with borrowings of 42 billion euros, which will have to be serviced by payments totalling €5.7bn in 2012. Following in the footsteps of Valencia and Murcia, it will be the third region to require funding from Spain’s €18 billion regional liquidity fund (FLA). What the headline in the El País editorial terms the "regional crisis" has emerged at a time when Spain and the eurozone are battling with extremely adverse economic conditions. The yield spread between interest rates on German and Spanish debt has reached the record level of 6.5%, while the interest on Spanish government 10-year bonds has risen to an unsustainable 7.6%. Catalonia’s request for assistance has highlighted the fact that —

…the regions have now entered a critical phase of the financial crisis, whose most immediate and most serious consequence will be to further undermine investor confidence in Spanish sovereign debt.

The region’s are responsible, remarks the daily, which also believes that Mariano Rajoy’s government should share some of the blame —

For years, the regions have systematically failed to meet their economic targets and have allowed their debt to accumulate with the complicity of successive governments, which, either for political reasons or as a result of simple negligence, forgot that regions should respect their commitments on spending deficits. But what has really appalled both the general public and investors is the chaotic nature of the relations between the central and regional governments. [...] Madrid was unable to obtain a clear picture of the regions’ finances. Along with other reasons, this failure led to a situation where there is no solution.

Headlining with “Catalonia acknowledges collapse”‘, Madrid daily El Mundo is harshly critical of regional politicians who should "cut back on all that is superfluous" —

No one will understand why the general population should make efforts to finance these bailouts, while regional leaders preserve their power structures intact. We have yet to see how the regions will respond to their dramatic situation. Central government has demonstrated a much greater commitment to conditions required by Brussels [...] In view of the regions’ opposition to the dismantling of their superfluous infrastructure [television channels, “embassies” and other institutions copied from the nation state], the government will have to take the matter in hand. [...] If Rajoy does not succeed in reining in the regions now that they are bankrupt, he will be making a mistake that will haunt him for years to come.

For their part, the Catalan newspapers emphasise that the bailout has come at a time when the regional parliament is debating the “fiscal pact” that will provide the basis for talks with Madrid on Catalonia’s participation in the national fiscal system. Inspired by the exceptional deal obtained by the Basque country, Catalonia is hoping to reduce its contribution to the funding of other regions and to gain control of further economic resources. However, as the El Periódico headline points out, Catalonia is “neither rich nor full,” which is why the newspaper’s director Enric Hernández believes that the issue of “the fiscal pact should be set aside” —

Just as a drowning man is not in a position to demand concessions from someone who throws him a lifebelt, it is hardly strategic to demand the keys to the cash drawer at a time when the region will have to submit to the diktats of the Ministry for Economy and Finance. The most appropriate option for Catalonia would be to keep alive the demand for negotiations on the fiscal pact, but to postpone talks until its circumstances have changed.

According to La Vanguardia “the Generalitat [the regional government] has taken the critical step of demanding financial aid from the state in exchange for reduced autonomy.” The Barcelona daily goes on to establish an ironic parallel with Mariano Rajoy’s description of the rescue programme for Spanish banks that was approved by the EU —

The Catalan government insists that this is neither a bailout nor an [external] intervention, but a simple line of credit with conditions solely focused on the sum borrowed. This is exactly what Rajoy said about the bank bailout whose conditions were later revealed. And the outcome of this is well-known.