Voters turn in debt-struck Catalonia

25th November 2010, Comments 0 comments

Catalans are ready to oust their Socialist-led government in a regional vote Sunday, polls show, as the powerhouse of Spain wallows in an economic slump and near 30-billion-euro debt.

The northwestern region, which boasts a bigger budget that Chile's, pushed up its direct and indirect debt by 24.2 percent over a year to 29.5 billion euros as of the end of June.

At the same time, output by the Catalan economy, built on small- and medium-sized businesses, dropped 4.7 percent last year according to Spanish savings bank-funded think tank Funcas, compared to decline of 3.8 percent for Spain as a whole.

Needing money, the Catalan government in October found itself obliged to raise three billion euros with the sale of one-year "patriotic" bonds to local residents.

It was the first time since 1980 that Catalonia had resorted to selling bonds only to its citizens to raise funds.

The bonds were sold at a 4.75 percent rate.

In addition, issuing banks received 3.0 percent in commissions, raising the overall cost for the Catalan government to 7.75 percent, close to what is paid by the crisis-struck Greek and Irish governments, which have both agreed to EU bailouts.

Opposition parties blasted the the high rates being paid for the bonds, which Catalonia's finance minister, Antoni Castells, has defended for reducing the region's dependency on external debt.

"It was an act of desperation, to pay public worker salaries," said Gonzalo Bernardos, economics professor at the University of Barcelona.

Fitch and Moody's ratings services each downgraded their credit rating for Catalonia by one notch this year.

Fitch cited the region's very steep decline in budgetary performance" while Moody's warned that Catalonia's "weak economic prospects" would increase its "vulnerability to funding problems".

Catalonia's 5.4 million eligible voters seem ready to make the Socialist-led coalition, in power in since 2003, pay the price.

Among potential voters, 39.5 percent backed the moderate nationalist Convergence and Union coalition and 20.4 percent the Catalan Socialist Party, said a poll published at the weekend in El Pais.

That's a level of support that could swing the nationalists into an outright majority in the region.

With a government budget of 39.7 billion euros last year, the wealthy northwestern region whose capital is Barcelona has long accounted for the biggest share of Spain's gross domestic product.

But in March data published by Funcas showed that in 2009 Madrid had for the first time accounted for the biggest share of the country's economic output, 18.71 percent, just ahead of Catalonia's 18.68 percent.

In terms of revenue per capita it remained in fourth place amongst Spain's 17 autonomous communities -- as the country's self-governed regions are called -- behind the Basque Country, Madrid and Navarra.

Being overtaken by Madrid hurt regional pride in Catalonia, where a sizeable minority would like to achieve independence from Spain.

"What was once Spain's motor has become its dead weight," wrote Alex Vidal-Quadras, the Catalan vice president of the European Parliament, in an opinion column published in daily newspaper El Periodico this month.

"Catalonia is in decline. During the past two years, it was the penultimate region in terms of economic growth," said Bernardos.

Bernardos blamed the Socialist-led government for the region's economic decline. "The economic management has been horrible and the tri-party coalition has failed," he said.

It is neverthless a region with a privileged position at the crossroads between France and Italy, providing a strong export-based economy, said Pere Puig, professor of economics at the ESADE business school in Barcelona.

"Madrid has done a good job of internationalising big companies. Barcelona has a hard time making a company grow in the world," said Puig.

"The Catalan government has created a bureaucracy that is too heavy and interventionist," he added.

© 2010 AFP

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