Update Materials
Update 3 - September 2009
Follow the money - but borrow it first (Relevant to chapter 2)
Spain's seventeen autonomous communities - especially those in Catalunya and the Basque Country - have considerable freedom from the central government in Madrid, not least in terms of the way they spend on, say, health and education. But, as we note in Chapter Two, raising the revenue for that spending is another matter. Outside the Basque Country, Madrid still collects the vast bulk of the taxes paid by all Spaniards. It then divides up some of the money that comes in and gives it to the regions, mainly according to need. In so doing, it ensures (rather like the German government does) a degree of redistribution between rich and poor parts of the country. Recently, however, as in Germany, Belgium and Italy, richer regions (especially those, like Catalunya, which enjoy more power and independence than others) have begun to argue that they should get to keep a greater share of the tax taken from their inhabitants.
These demands threaten the interests of Spain's poorer regions (most obviously in the south and in the Canary Islands). They also represent a further challenge to the authority of the central government. Coming up with a financial settlement that will satisfy everyone, then, is getting harder and harder - and made harder still since the country was hit by the global financial downturn and the end of the country's long property boom. The Socialist government in Madrid, however, was in a bind. Playing hardball is not so easy when you control just a minority of the seats in parliament. In Spain, at least, that means you are reliant for your continued survival as a government on the votes of small parties from the very same regions which are either asking to keep more of 'their' money or relying on you to ensure the continuation of state subsidies.
The simple - but potentially irresponsible - solution would simply be to give in and find the money by increasing a national deficit that is already worryingly large. And this, to the horror of some economists and the main opposition party, the centre-right Partido Popular, is exactly what the Prime Minister José Luis Rodriguez Zapatero, now into his second consecutive term of office, decided to do in July 2009. His hope was obviously that the economic good times would return, allowing the government to pay for the deal, as well as for the debt occasioned by the fiscal stimulus measures that it, like other governments, came up with in order to counter the recession. The deal bought his party PSOE at least another year in government. At what price - financial and political - remains to be seen.
