The negotiations between the PSOE and the ERC centered on gaining a government commitment to partially forgive Catalonia’s debt to the State, a move that could extend to other regions under the common regime (excluding the Basque Country and Navarra). This was explained by Félix Bolaños, Acting Minister of the Presidency. It is public knowledge that Catalonia would receive about 15,000 million in debt forgiveness, although it remains unclear whether debts of all communities will be erased in full.
What criteria will be used to determine regional debt forgiveness?
The agreement between the PSOE and ERC references the growth of regional debt since the 2007-2008 financial crisis. It notes that all autonomies carried debts from 2007 through 2014, and asserts that the growth in debt was amplified by the crisis, the economic cycle, and the imperfect European and national responses to the crisis. The text explains that debt forgiveness would target the portion arising from the negative effects of the economic cycle. For Catalonia this impact has been estimated at 15,000 million. For other autonomies, figures remain uncertain and could be addressed separately.
Will all communities’ debts be forgiven at the same rate?
Initial relief is not expected to be uniform. The 15,000 million for Catalonia represents roughly 20% of its state debt through the Autonomous Liquidity Fund (FLA). Government sources suggest that forgiveness percentages may vary by community. The agreement states that the amount of debt tied to the business cycle will be used to calculate forgiveness, and that the resulting reduction would be adjusted accordingly. In a broad, reference scenario, applying 20% to the total territorial debt to the State (about 191,750 million) implies a potential reduction of around 38,350 million. Catalonia has the largest FLA debt (around 73,110 million, or 84% of its total regional debt). Valencia, Andalusia, Castile-La Mancha, and Murcia follow in order of size and share of FLA debt.
Will Madrid’s debt also be forgiven?
Possibility exists. The agreement outlines that after assessing the portion of regional debt linked to the crisis, transfers could be used to cancel debt owed to third parties if necessary. This phrasing keeps the door open to considering forgiveness of Madrid’s debt, though Madrid currently does not owe debt to the State as it borrows independently in financial markets. The Basque Country and Navarra also do not owe State debt, and they fall outside the scope of an agreement intended for all autonomous communities with a common regime.
What advantages do autonomous communities receive?
First, regions would avoid returning a portion of the forgiven amount to the Treasury, such as the 15,000 million earmarked for Catalonia. Second, they would stop paying interest on the forgiven titles. Catalonia estimates that forgiving 15,000 million could save about 1,300 million in interest over the coming years. Analyses presented by Carmen López at a conference on debt sustainability highlight that the average interest rate on regional debt to the State sits around 0.75%, with an average maturity of five years.
Who loses with this deal?
The State would see lower revenue as the treasury experiences reduced interest and principal repayments. The global budgets would reflect losses where principal payments are not collected when due (the 15,000 million for Catalonia and other communities). The overall debt level of Spain remains high, but the distribution of debt across administrations would shift. Steps are proposed to improve the Generalitat’s access to market financing, including a legislative amendment allowing the State to assume a broader role for common regime communities. regional debt
Will the Autonomous Liquidity Fund be protected?
Yes. The agreement states that debt reduction will not affect the FLA’s role as a backstop in stressed market conditions. The FLA, established in 2012 to support autonomies, would continue to operate as a last-resort mechanism if needed in the future. Since its inception, Treasury financing tools have injected hundreds of billions into autonomous communities, some still carrying significant debt stock.
Citations: Agreement text between the Socialist Party and ERC; public briefings by fiscal authorities; analyses by financial researchers on regional debt and liquidity instruments. [Citation: official text summary; fiscal analysis publications].