Wednesday, May 17, 2017

Blame Madrid: The Timing Of Finance

Timing, as they say, is everything. Or perhaps it is nothing. On balance, I'm sticking with everything.

The regional government has been at it again. Its politics of finance are guided by one principle: blame Madrid. If it weren't for the national government (by which is meant the Partido Popular), the Balearics would be awash with cash. The Balearics lead Spain, lead much of Europe when it comes to economic growth. Yet the Balearics are impoverished. Blame Madrid for its unjust financing system and perhaps a small dollop of right versus left politics.

The impoverishment is of course over-egged. It is over-milked as well. To the eggs are applied great scoops of cream, all of them aimed at the fat of the national government to the detrimental wasting-away of the slimline Balearics. The latest cake with dairy topping that has been baked by the regional finance ministry is one of "liquidity tensions", by which one is supposedly meant to believe there is some form of cash flow crisis.

Madrid is denying the Balearic government spending of nigh on 150 million euros. The spending can't be made because Madrid wants some of its money back from the debt that the region has with the state. Here is another example, therefore, of how Madrid attacks the ever poorer Balearics and the deprived citizens of the islands.

The financing system is, pretty much everyone agrees, including Madrid, somewhat cockeyed. But the 150 million euros haven't got to do with this directly. They have to do with the regional capacity to spend, something restricted and monitored by law - the Montoro Law, named after the national finance minister.

While I am generally inclined to agree with the regional government when it comes to the financing system, the problem I have is with the constant narrative. It is a political one, pure and simple. If services aren't invested in, for example, it's not the regional government's fault. Blame Madrid. I do also have some sympathy because the current government, despite its left complexion, has proved to be pretty decent at financial management. There again, it has to be, because Madrid insists on this. Edging into surplus, which is expected this year, owes at least something, regardless of the Balearic giveaway because of the distributive financing system that props up other regions, to tax revenues. Economic growth swells coffers, even if it doesn't find its way into employees' pay packets.

The timing was everything. Making plain its disgust with Madrid over the 150 million euros and alerting us all to the existence of a possible surplus, the government was making a plea to be allowed to spend all the extra revenue sloshing around. It can't because Madrid won't let it, just like Madrid won't let town halls spend their surpluses. This was the timing. No sooner had the government pleaded for greater spending flexibility, than Congress was letting it be known that there is to be a modification to the Montoro Law.

The Spanish Federation of Municipalities and Provinces, presided over, it might be noted, by Palma's mayor, José Hila, had succeeded in getting a budget amendment approved with full-party support. Balearic town halls will, it is understood, be able to invest some 400 million euros from their 2016 surpluses: the Montoro Law is to be partly busted after all. There are 67 municipalities in all. On average, not that it will work out this way, this will mean almost six million each. For the more prudent town halls and those with greater surpluses, the investment potential will doubtless be much greater.

The timing wasn't nothing. It was everything because the government would have known what was afoot in Congress. Or does no one in PSOE in the government, e.g. the Balearic president or finance minister, speak to Hila? Relationships are known not to be great, but when there are 400 million knocking around even the more difficult relationships can be smoothed. Of course the government knew.

So now, the government can say that if there is some loosening of town halls' purse strings, there will be even greater injustice if it is not permitted to have similar flexibility. The politics of finance can thus advance a further step. Madrid can be blamed ever more.

In fact, the government may not wish to harp on too much about this. It plays the siege mentality to its political advantage, while questions might be asked about whether it was aware of the possible modification of the Montoro Law much earlier. The town halls were distinctly miffed at not getting any tourist tax revenue for direct investment this year. They will now be in a position to fund projects a different way, with investment from the surplus allowable this year and in 2018. Did the government know earlier? The politics of finance, as with timing, are everything.

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