Por qué España no se reformarà

Wall Street Journal:

Of late Mr. Rajoy has been blaming Spain's regional governments for the country's deficit overruns, saying that wayward local spending had jeopardized the entire nation's creditworthiness. Madrid has threatened to intervene in the regional governments' budgets if they don't tidy their books on their own.

But according to Andreu Mas-Colell, Catalonia's economy minister, the real story is a little different. He explains that with the exception of the Basque Country, Spain's 17 regions enjoy spending autonomy but almost no revenue autonomy. It's up to the central government to decide how nationwide revenue gets distributed between regions, and there's no guarantee that what a region's citizens pay to Madrid is returned euro-for-euro in funding to that region.

That means the central government can make its own budget shortfalls look smaller—and the regional governments' look bigger—simply by keeping more of the revenue pot to itself.

The result? Catalonia is the seat of Spanish industry and one of the most important industrial districts in Europe, lagging only the likes of Italy's Lombardy and the German Ruhr in productivity. Yet each year since 1986, an average of 9% of Catalonia's GDP in net terms has left the region to be redistributed or spent by Madrid. In Spain, only the Balearic Islands surrender a larger share of their annual output. Nowhere else in Europe or North America do intra-national transfers of such size occur as a matter of course.

"In discretionary expenses we feel we have been historically shortchanged," Mr. Mas-Colell says. "We represent 15% of the population, and we represent close to 18% in terms of GNP. . . . In this year's budget, the investment in Catalonia is 11% of public investment in Spain."

"There are inefficiencies in the autonomous communities for sure," he adds. "But not to a larger extent than the inefficiencies in the central administration. . . . Spain in all its components has to gain on efficiency, on liberalization, on flexibility."

Seen this way, Madrid's threats to recentralize fiscal policy look like a political play that distracts from reforms that could actually help the regional governments close their budget gaps. Mr. Mas-Colell says that it's up to Madrid, for instance, to make regulatory changes that would enable hospitals to charge for prescriptions, meals and overnight stays, as his government is trying to do.

He also notes that Barcelona has cut government employees' wages. Madrid hasn't.

It's a little bewildering that Madrid would choose to inflame separatist feeling in Catalonia at a time of national crisis. More than 40% of Catalans now say they'd support seceding from Spain. But Madrid's centuries-long jiu-jitsu with the regions suggests something about the national character, according to Germà Bel, an economist at the University of Barcelona. Centralized control, Mr. Bel told me, is in "the genetics of the Spanish state."