Política & Spain for dummies & Unión Europea
The next shoe to drop in the Eurozone debt crisis: Spain’s regions
With Berlusconi and Papandreu gone, the eurozone will probably get a bit of a respite. Although the underlying problems are still there (too much debt, not enough growth, an incompetent central bank), investors are probably thinking that we are out of surprises. The worst leaders are out, countries in trouble are known quantities, and now it is a matter of sorting out this whole horrible mess.
Well, not so fast. Spain, a country that has been looking out of trouble lately, still has some potentially nasty surprises waiting to emerge.
One place you should know about in the coming months: Andalucia. This autonomous region, Spain’s most populated, will hold elections in March 2012. The Spanish socialist party has governed there for almost thirty years, and region has always been notorious for its lax approach to accounting principles or general administrative efficiency. Unemployment in most of the region is above 30%, and patronage and government waste traditionally approach Greek levels of mismanagement. The region has a 32 billion euro budget, and even in this times of fiscal consolidation it will see a 1,1% increase next year. Although José Antonio Griñán, Andalucia´s chief executive, claims that tax increases will cover the new expenditures and that the deficit is under the limits marked by the central government, some recent events are enough to sow some doubts.
Flashback to May 2011, when Castilla-La Mancha, another region long under socialist rule changed hands after the regional elections. The newly elected conservatives discovered to their dismay that what the socialists claimed it was a fairly balanced budget (1.5 billion deficit) turned out to be an accounting mess, with debt stuffed in every possible legal loophole (2.8 billion deficit, plus 2.2 billion in unpaid bills). Extremadura also faced similar issues, with the new communist-conservative coalition finding a bigger debt hole than expected. Neither region, howeve, is as big or as badly mismanaged as Andalucia is. Come March 2011, it is hard to imagine that the new conservative team won´t find another accounting disaster. Trouble is, this time it will be in a region four times bigger, close to the size of Greece.
The main issue, however, is not that Andalucia is really that exceptional. Regional numbers are hard to come by and even harder to understand, but other (conservative-held) regions like Murcia and Valencia has been long suspected to hide a great deal of debt in odd places. To make things worse, further fiscal consolidation by the soon-to-be-elected conservatives are not going to make things any easier, as the brunt of budget cuts would fall on the regions in the coming months.
Why? For starters, Spain is a quasi-federal country. Or it is federal in everything but on how the money gets raised and spent, to be more precise. Regions do most government spending (excluding social security), but it is the central government the one that raises most taxes. The regions rely heavily on money transfers from Madrid to deliver the goods, giving them a very strong incentive to spend too much and then blame the central government for not giving them enough cash. As the «federal» government runs out of programs to cut, however, the logical next step will be start «rationalizing» the amount of money they pass on to the regions, shifting the cuts down the road. This will only make things harder for the regions, some of which already have had some trouble paying the bills.
Though Spain´s regions are not «big», and their total debts account only for a fraction of Spain´s GDP, it is important to keep in mind that Greece is also comparatively tiny. Greece´s budget is around 115 billion euros, less than the total budget for Spain´s regions. It might well be that the new government manages to keep them in check, but don´t rule out any new nasty surprises down the line. And God knows that if there is anything the eurozone does not need is another pile of debt coming out of nowhere.
One final note: guess which already troubled financial entities hold most of the debt from Spain’s 17 regions. The cajas de ahorros, Spain’s messy saving banks that are partially owned by the regional governments. Just in case you were wondering.
Roger,
Do you think that Andalucia is worst problem than Madrid?
Madrid has a great system to cover debt like private contracts (roads, hospitals, public services, Metro…) and now Aguirre («federal» president of Madrid) is saying that all this was expensive and an error.
Andalucia probably show a lot of shadow debt, but I believe that this cannot be bigger than Madrid or Valencia.
Roger.
Valencia is a huge mess also, with debris piling in the streets (The emarsa thing is just the tip of the iceberg http://www.levante-emv.com/valencia/2011/11/11/pp-suspende-exgerente-emarsa/855904.html )
But, as they are still in power there will be no attacks from the new Rajoy government as will fall over Andalucia.
I think is not a matter of politic colour but of the disfunctional system of «autonomias» as you have said. Maybe it is the time to move to a full federal system (maybe as CIU asks??)
The difference between Andalucia and Madrid or Valencia is that the former is very likely to «change hands» after the March elections, and the new government will have an incentive to tell what a mess everything is («we have to make cuts everywhere because the mismanagement of the socialists»). Madrid and Valencia remain under the same governments, so the politicians will do everything they can to hide the debts, as they are responsible for them.
Another difference is that Andalucia has been receiving EU cohesion funds for 25 years now, ever since Spain joined, and with no particularly good results, if good at all. That money has been used to finance every kind of project for «friends» of the ruling party. Some people even speak of a «Régime».
For years it has looked like the socialists would never lose an election here, and until very recently their electoral performance has been consistently and considerably stronger in Andalucia than in the whole of Spain. For example, in the 2000 general election, the PP won an absolute majority of seats in the Congress, and polled over 2 million more votes than the PSOE. But the same day, elections to the Andalusian parlament were also held, and the socialists retained their majority. As late as 2008, they won over 50% of the total vote. But recently their support has waned at a surprising speed and the polls give the PP a similar advantage in Andalucia than in the rest of Spain, which should provide Javier Arenas (their leader) with an absolute majority.
In fact, since 1996 the elections to the Andalusian parlament have always been held on the same day as the general election, because that’s supposed to favour the socialists, but this time their electoral perspectives are so dire that President Griñán has decided, against the opinion of many people in the PSOE, to held the elections in March, when they are due. The idea is that Rajoy will have to take strong decisions as soon as he takes the power, and by March the public opinion will have changed enough to at least avoid the PP taking the absolute majority in Andalucia, in which case the PSOE is highly likely to retain the power, because the United Left (IU, a small party to the left of the socialists) andalusian leaders have already made more or less clear that they won’t allow a repeat of what happened in Extremadura (where, after the May election, the PP was one deputy short of the absolute majority, but the IU leaders decided against supporting the socialist candidate).
What many people in the PSOE think, though, is that, in the short run, there will be even more support for the conservatives as soon as they win the election next Sunday, and four months won’t be enough to erase that support, so the results of the socialists could be even worse come March. More people are expected to vote in the general election as well, and abstention usually favours the conservatives (although, for the first time in years, that wasn’t the case in the recent May local elections). That’s why in the past the general elections were made to coincide with the Andalusian ones.
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Valora en Bitacoras.com: With Berlusconi and Papandreu gone, the eurozone will probably get a bit of a respite. Although the underlying problems are still there (too much debt, not enough growth, an incompetent central bank), investors are probably t…..
Estoy de acuerdo con el artículo y también con los comentarios (@Francisco: cuando aparezca la deuda oculta de Valencia se va a liar gorda), pero, ¿se puede saber por qué en inglés?.
Está bien poner artículos en inglés (o lo que sea) tomados de otras fuentes. Pero, ¿redactarlos directamente en inglés?. No acabo de comprenderlo.
Estoy en desacuerdo en una cosa: España no es federal de ninguna manera. Aunque en el fondo de éste artículo eso no es importante.
El artículo está en inglés por un motivo muy sencillo: categoría «Spain for Dummies». Está escrito para lectores fuera de España, no dentro. Básicamente, me lo ha pedido un amigo.
Y oye, si nos enlazan desde el imperio, aún mejor.
I am not an expert, for what i have read, spain is as federal as possible.
In «Transicion» the had to make a constitucion that says Federal republic but not using that very words. Thats why the king is absolutely powerless and there are «autonomias».
@Roger: OK. Now I understand.
@Amalric: in a federation, all parts of the federation are equal, and have the same rights. In a federation, the parts give power to the central goverment. In the autonomic design the central goverment gives powers to the regions.
In the autonomías, we have different per-region rights and powers (from medieval tax-free rights -Euskadi and Navarra- to Catalonian autonomic police corps). There are lots of, inequitable, differences.
The spanish autonomic design was made to avoid the possibility that basques and catalans could have a chance -as they could in a federation- to get independents from Spain.
In daily practice, Spain is almost federal, but not from a legal point of view.
¿Por qué la gente en los comentarios se empeña en escribir en inglés cometiendo errores de bulto?
¿Lo hacéis pensando en los posibles lectores angloparlantes o para presumir de idiomas?
Porque si es por ésto último, lo único que conseguis es generar el efecto contrario….
I don´t know the details but Valencia, Murcia, Madrid are not that much better than the other, probably even worse. I think there are more bad cajas de ahorros in those places than in the others.
@Spanish Dummie: en mi caso porque ya que el post está escrito en inglés, me parece coherente contestar en inglés. Supongo que le habré pegado muchas patadas a la gramática inglesa, pero se entiende.
@Amalric @Miki: There are federal states way more decentralized than Spain is. The autonomous communities don’t have great tax varying powers, for example. And in the U.S. you can be sentenced to the death penalty in one state and not in its neighbour, for exactly the same crime.
Spanish dummie.
We try to do the best we can.
My apologies about my poor english.
A fascinating article. Here in Almería, where I live, the unemployment rate is (apparently) at 35.6%. Yet still the banners are up: ‘Fight for what you believe in’ say the PSOE…
Well, do something.
@ferrim
As far as i know, there is nothing in the constitution that describes the limits, and the differences in the powers of the autonomias is due to negotiations with the central goverment. An example, valencia has a token police force, and they could make it stronger but they are not interested now.
As you said, we have a federal system in a indirect way. I will say a federal system under construction.
@amalric Look for article 149 of the constitution. There’s a long list of things that only the state can do, so yes, there are limits.
Lenox,
I know people in Almeria, they pay the same price for a small house in Roquetas than we pay in Madrid, there is people with four houses «to investment».
When half of people try to take the money out there is the same like Madoff or Forum Filatelico.
There is no possible to taka back to build in Almeria by now, 35,6% of unemployment seems not to bad.
They were building houses in desert and requesting 300.000 € by each one.
It seems rigth not so far ago.
Fuck them…. 🙂
Just a little detail there isn’t any communist conservative coalition in Extremadura, just the communist letting the conservatives rule.
Paso de escribir en inglés el comentario, lo siento por los guiris que entren. De todas formas tampoco entenderían la página del Síndic de Comptes.
En Valencia hay una institución muy graciosa e ignorada llamada, como los más avispados habrán podido imaginar, Sindicatura de Comptes de la Comunitat Valenciana, heredera del Mestre Racional etc. que audita año tras año y de manera independiente las cuentas de la Generalitat, de sus agencias Y DE LAS EMPRESAS QUE DEPENDEN DE LA MISMA, así como las cuentas de algunos ayuntamientos. Yo le dediqué un post a las empresas y es para llorar, no quise atreverme con mucho más. Un enlace a tan maravillosa institución:
http://www.sindicom.gva.es/web/wdweb.nsf/menu/informes
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