The governor of the Bank of Spain, Pablo Hernández de Cos, cautioned on a Monday that the patchy fixes to regional financing repeatedly surface without addressing a longer‑term solution. He described the autonomous financing system as an old problem that reappears, noting that the core issue is not whether regions perform well or poorly, but that resources themselves remain insufficient. In his view, the deficit and public debt indicators are not a simple measure of regional management; they reflect a broader lack of adequate resources in the financing framework.
Hernández de Cos emphasized that gaps in the accounts of autonomous communities stem from inadequate funding. He argued that the financing mechanism itself is the root cause when difficulties arise, turning insufficient funding into a convenient justification for government rescue programs that recall past interventions like regional financing funds and prior reductions under the Rajoy administration (the Fondo de Financiación Regional). He suggested that the government should move away from such ad hoc bailouts and toward a financing system that reliably resources regional needs.
He called for a complete reform of the regional financing scheme with mechanisms that foster prudence in spending and investment. The aim, he said, is to ensure that communities have genuine autonomy backed by appropriate resources, while at the same time being held to tighter accountability by the state for their financial health.
Duties to the Government
The governor also stated that the Bank of Spain does not see a need to expand beyond the annual income threshold that could trigger adjustments in the mortgage code of good practice, designed to reassure borrowers about payment issues that the government plans to resolve in the near term. He cited a benchmark around 29,400 euros (three and a half times the average income) to illustrate how the framework should support households, noting that this level is a reference rather than a rigid rule. He reiterated that this is an ongoing approach, not a one‑off measure, and he observed that the European Central Bank has begun signaling potential rate reductions again, a move that could influence banks and their balance sheets.
Hernández de Cos also pointed to the need for mitigation of financial imbalances as a top priority for the incoming government. He argued that a bold reform agenda is essential if Spain is to close the gap with the European Union average in income per capita. He warned that years of limited productivity have hindered progress, and he urged cross‑party consensus on a few targeted steps that can be agreed upon by different political groups to move the country forward.
In his view, the right path involves reforms that strengthen public finance discipline, improve the efficiency of regional spending, and create a financing framework that aligns regional autonomy with clear accountability. These changes, he suggested, would help ensure that regional governments can manage their budgets responsibly while maintaining the health of the broader financial system.
Overall, the message from the Bank of Spain is that the focus should be on closing the financing gap, building durable resources for regions, and pursuing pragmatic reforms that advance productivity and living standards without compromising financial stability. The remarks underscore the central bank’s preference for systematic reform over piecemeal fixes, aiming at a durable framework that serves both regional needs and the national economy.