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Spain’s political deadlock leaves €5 billion in regional funding in the air

The lack of a stable government means the state cannot release the additional money that the regions had promised to spend on public healthcare and education

Acting Finance Minister María Jesús Montero.
Acting Finance Minister María Jesús Montero. EFE

For months, Spanish regional governments have been struggling to patch their leaky budgets. While they passed their 2019 public accounts based on the central government’s revenue forecast for this year, the numbers are not adding up.

Standard & Poor’s has forecast “pressure” on regional finances in Spain

The lack of a stable government in Madrid, more than two months after the April 28 general election, means that nobody is working on getting a national budget approved – the election was called early partly due to acting Prime Minister Pedro Sánchez’s inability to sell his blueprint to parliament.

And this means that the state cannot release approximately €5 billion in additional money that should be going to the regions as part of Spain’s system of devolved powers. Some regional authorities are already feeling the pinch, and they demand solutions. Acting Finance Minister María Jesús Montero has pledged to find one, but little progress has been made so far.

Spain has been politically out of step for nearly five years – the country has held three general elections in the space of four years, and there is a risk of a new one if no government is formed in the coming weeks. At the same time, its economy has been growing faster than those of most other large European countries.

A similar case in point is Belgium, which spent nearly two years without a government in 2010 and 2011, yet whose economy continued to grow regardless. But the problems came later: Belgium’s debt levels are too high and there is hardly any financial buffer to fall back on in the case of another crisis.

Spanish regions were expecting to receive €105.3 billion this year, around €5 billion more than last year, based on the central government’s forecast of increased public revenues stemming from this growth. Under the system, the government estimates how much more money will flow into public coffers, and it gives regions an advance until reality confirms the predictions.

The current acting government is working with the 2018 budget, which does not include the uptick in public revenues

Regional authorities drew up their own budgets based on this increased amount of disposable money, and they promised improvements in public healthcare and education, among others. But the money has yet to arrive.

The previous central government, led by Pedro Sánchez of the Socialist Party (PSOE), had made this forecast before failing to get its budget plan approved in Congress. The current acting government is working with the 2018 budget, which does not include the uptick in public revenues expected from an economy that continues to grow in excess of 2%.

Even if Sánchez is successful in his bid to get reappointed at an investiture vote later this month, no new budget will be forthcoming in the near future, which means that regional officials will be short of the extra €5 billion they’d been counting on. The international markets are aware of the situation, and financial services company Standard & Poor’s mentioned it in a release about Spain that forecast “pressure” on regional finances.

“There is some difficulty on this matter,” admitted Minister Montero. If the money does not arrive, regional governments could be forced to introduce spending cuts.

Officials in Galicia and Catalonia have already protested the situation. In the latter region, there is no regional budget either, as Premier Quim Torra has failed to secure sufficient support in the Catalan parliament. Instead, the region is still functioning on an extension of the 2017 budget, coupled with a contingency plan that relies on this extra money promised by the central government, which amounts to €800 million for Catalonia.

English version by Susana Urra.

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