Anorak News | The real problem in Spain is the provincial governments

The real problem in Spain is the provincial governments

by | 27th, September 2012

WE’VE a very interesting little stand off developing in Spain. It’s just all rather more complicated that it at first seems.

OK, so we know that the country can’t afford to pay  6% or more on its borrowings forever. It will go bust if it does that. We also know that it needs to recapitalise the banks. Which means borrowing more money: see the above problem.

Great, so, the EU can, through various cobbled together funds provide that money and also lower the interest rates being paid. Great, so, why isn’t this the solution?

Well, that’s where it gets complicated. You see, the regions in Spain have a lot of power. They actually spend 40% of all the government money: oh, and they’ve all borrowed a lot themselves as well. The Province of Valencia for example owes the pharmacies €500 million for prescriptions that it hasn’t bothered to pay them for yet.

Hmm, so, to get a grip on the budget, so as to be able to access the EU money, the Spanish Government has to get those provincial governments back in hand. Which they don’t want to do and the Constitution doesn’t say they have to do. In fact, one of them, Catalunia, has decided to have a snap election partly based on the idea that the region should secede from Spain. Oh, and the Army says that it is the guarantor of the Constitution which says that no one can secede. And in order to stop Catalunia thinking about seceding the central government is going to have to let them spend more tax money….which means that they can’t get the regional spending back in hand and thus qualify for the EU money that stops the whole country going bust.

As I say, it’s all a bit more complicated than it at first seems. And no one really knows how it is all going to turn out. Which is something of a real problem…..

Photo: People hide during a demonstration against austerity measures at the parliament announced by the Spanish government in Madrid, Spain, Tuesday, Sept. 25, 2012. Spain’s Parliament has taken on the appearance of a heavily guarded fortress with dozens of police blocking access from every possible angle, hours ahead of a protest against the conservative government’s handling of the economic crisis. The demonstration, organized behind the slogan ‘Occupy Congress,’ is expected to draw thousands of people who call for Parliament to be dissolved and fresh elections held, claiming the government’s austerity measures show the ruling Popular Party misled voters to get elected last November. 

Posted: 27th, September 2012 | In: Money Comment | TrackBack | Permalink