19 April 2012

Carles Boix: Spain needs a new deal for its regions

Spain will only get back on track if the government offers a bold plan that rationalises the state and liberates free enterprise and productive territories, comments Boix in the FT.

Spain’s crisis is structural – in the past 40 years the unemployment rate has shot above 20 per cent three times – and it demands wide-ranging reform. Measures to modernise the labour market, approved by the government, are insufficient to create jobs. The underperforming education system must also be overhauled. Spain’s rule of law must be strengthened... Finally, the government needs to dismantle the system of “national” companies that operate as monopolies or oligopolies, distorting markets and employing on their boards former government politicians and politicians’ relatives.

Spain’s central government has shifted much of the blame for the country’s deficit on to (allegedly free-spending) regional governments. Yet in fact, although most regions manage education and health, most regulatory and tax-and-spend powers remain with central government. More important, the regional system relies on huge fiscal transfers... Net paying regions have to raise debt to cover services (at standards set by Madrid) and even then they cannot make it... By contrast, net receiving regions are splurging: one in four Andalusians work for the regional government, against one in 10 in any net paying region. 

This situation cries out for a “new federal deal”. Inter-territorial transfers must be reduced to a minimum: they hurt the more productive areas of Spain. More boldly, most autonomous governments should be absorbed back into central government, while full tax-and-spend powers should be granted to historical nations, such as Catalonia, that support the bulk of transfer programmes and are growing restless. 

© Financial Times