Catalonia resists ‘mad’ austerity

By Victor Mallet in Madrid / Financial Times

Artur Mas, premier of Catalonia, has committed his administration to severe austerity, but rejected as "destructive" and "mad" the spending cuts that would be needed to fulfil the central government's 2011 deficit targets for the regions. Mr Mas, in a speech to business leaders in Madrid on Monday, also said he was promoting a "budget pact" among Catalan parties so that the region could demand a new deal from Spain to reduce Catalonia's net contribution to the national exchequer.

The robust assertion of Catalonia's immediate and long-term demands by Mr Mas – a Catalan nationalist whose Convergència i Unió party leads the government following elections in November – may worry sovereign bond investors already concerned about Spanish public deficits. Spain is one of the most decentralised countries in Europe and regional governments will have to enforce fiscal discipline if the country is to tackle its fiscal problems and calm the fears of investors.

Catalonia's stance also has implications for the future shape of the Spanish constitution. Catalonia is one of the richest and most industrialised parts of Spain and its economy is the same size as Portugal's. The region said it needed to raise €10bn-€11bn this year to cover deficits and repay earlier loans. On Monday, it signed a €400m ($564m) four-year loan from Santander, the Spanish bank, and officials said it had sold a further €400m in two-year bonds to local and foreign investors at a yield of 5.5 per cent.

Spain's 17 regions collectively overshot their centrally imposed deficit target of 2.4 per cent of gross domestic product last year, and the overall Spanish public deficit was cut as planned only because the central government exceeded its target. Catalonia's 2010 deficit under the previous regional government had reached a budget-busting 3.9 per cent of GDP, or €7.5bn, Mr Mas said, prompting his new administration to impose a 10 per cent cut in its operating costs in what he called a hard and unprecedented adjustment. "We have a tumour, but we will control it, we will prevent metastasis and we will clean it out."

However, he conspicuously failed to commit Catalonia to this year's official regional deficit target of 1.3 per cent of GDP without central government help, rejecting "destructive" cuts or "mad" ideas such as the closure of hospitals. He called for a new deal to reduce the 9 per cent of GDP that he said Catalonia transferred to the rest of Spain each year. "It's impossible that some regions should put this money on the table for ever without anything changing," he said, comparing the withdrawal of European Union aid funds for Spain in 2013 to the cuts he hoped to achieve in Catalan transfers to the rest of Spain. "What happens in Europe should happen in Spain," he said. "In Spain, people have been living beyond their means. In Catalonia, we're living below our means."

In another demand for Catalonia's control of its own destiny, Mr Mas said the region did not oppose the government's plan to privatise the airports in Madrid and Barcelona, the Catalan capital, but wanted Catalan interests to end up with control of Barcelona's El Prat airport.