Debts of autonomous communities exploded after the 2008 financial crisis. Over a few years, it grew from 5.8% of GDP in 2007 to 20.6% in 2013 and 27.2% in 2020. 23.2% of GDP on average. In regions such as the Valencian Community, this ratio reaches 43.5% of GDP. The financial autonomy of these and other communities has been nullified by the weight of the debt, so the possibility of some form of cuts by the State has been on the table for years. Now, within the framework of negotiations for the appointment of Pedro Sánchez as Head of Government, Regional debt forgiveness is on the horizon PSOE to negotiate with ERC. There are basically two ways to approach a haircut: forgive the debt or renegotiate the terms and interest rates. Neither is politically peaceful.
More than half of the total regional debt belongs to the state. financial ease mechanisms Like the Autonomous Liquidity Fund (FLA). Since markets demanded high interest rates from the autonomous communities as a result of the debt crisis, it was the Treasury that assumed the debt and then transferred liquidity to the autonomous communities. So in 2012, mechanisms such as the FLA were put in place to save the finances of communities, and now 58.6% of the regional debt is owed to the state. One way to forgive your debt, The state undertakes some of these amounts as their own obligations.
The Treasury is reluctant to talk about “forgiveness,” “removal,” or “forgiveness” of regional debt, at least for now. PP minister Cristóbal Montoro once faced the rejection of attempts by autonomies such as Galicia and Madrid (which are governed by the PP and have lower debt levels) to forgive a debt that, from their point of view, was more about debts. It is mismanagement and waste rather than inadequate funding. Madrid continues to show its rejection.
So the word “forgiveness” seems to be banned from the discussion. The Valencian government argues that the State assumes that the volume of regional debt is equivalent to an estimate of 23,000 million (in 2021 figures) of accumulated underfunding. But they prefer not to call it condoning, instead debt “offset”.
There are other alternatives to obtaining a financial impact equivalent to “forgiveness.” Adhere to Renegotiating loan terms and interest rates, extending them and reducing them. The debt does not decrease, but as the maturity extends, its current value counterpart decreases. Additionally, the annual financial burden can almost disappear. In this sense, extending the current average life of 5-year debt held by autonomies facing special challenges to 75 years and reducing the average interest rate from 0.75% to 70 basis points (0.05%) would be equivalent to: Analistas Financieros Internacionales A 50% reduction in the current value of debt, according to calculations presented by (AFI) partner Carmen López at a conference on ‘Debt and sustainability of regional finance’ held in Valencia last March. AND everything, this, unnoticed.
Currently, the Treasury is not announcing what the plans are to alleviate the regional debt, which Acting Finance Minister María Jesús Montero has generally mentioned in some cases. Statements in favor of María Jesús Montero solving the problem of “accumulated debt” They point out that aid may only go to communities that have had obvious underfunding in recent years, but that’s not a given. Data analyzed by the Fedea foundation clearly shows that Valencia, Murcia, Andalusia and Castilla La Mancha are the places that have raised the least funding per capita in recent years. However, at least Catalonia and the Balearic Islands are also considered underfunded. In any case, the Treasury perceives the debt debate as part of negotiations about what the debt should be. new regional financing systemIt has been waiting to be reviewed since 2014.
Already in 2018, the then Minister of Finance, Cristóbal Montoro, introduced a provision into the State Budget Law that opened the door to the forgiveness of regional debts contracted with the State itself. In the report published by the Commission of Experts to Examine the Autonomous Financing Model in July 2017, the need to alleviate the accumulated debt was discussed and attention was drawn to different options. However, the change of government in June 2018 and the subsequent health crisis postponed the discussion. The current cycle of high interest rates predicted for a long period of time, The search for relief from financial burden is more urgent Autonomous communities with higher debt ratios will need to adapt in the coming years. And the need for the PSOE-Sumar coalition to provide political support for the appointment of Pedro Sánchez provides the political opportunity to advance this negotiation.
Catalonia It is the autonomous community with the highest debt volume in absolute figures (84.8 billion euros) and second in terms of GDP (32.4%), behind the Valencian Community (43.5% of GDP). Catalonia owes 84 percent of its debt (73,110 million) to the state through mechanisms such as the Autonomous Liquidity Fund (FLA).
In mid-2023, total regional debt averaged 23.2% of GDP; In the Basque Country, Navarra, Madrid or the Canary Islands, rates ranged from around 13% of GDP to 43.5% in 2020. 32% in the Valencian Community or Catalonia, Murcia and Castilla-La Mancha. These latter debt rates would have been practically unaffordable for these areas if the State – through the Autonomous Liquidity Fund (FLA) and other Treasury mechanisms – had not financed more than 80% of these communities’ liabilities at low interest rates. In return, the financial autonomy that other regions maintained was lost. Neither the Basque Country, nor Navarra, nor Madrid owe any debt to the Treasury’s financial mechanisms. In the cases of Galicia, Asturias, the Canary Islands and Castilla y León, the percentage of total debts contracted with the State varies between 22.4% and 14.5% at both extremes.