New Spanish Finance Horrors


Spain is an unhappy federal structure held together by subsidies and crooked accounting. The drive of Catalans and Basques and others for independence has been checked by a system in which the regions of the country have gained more and more fiscal and policy autonomy. That worked pretty well when Spain was booming, the markets were as bubbly as a glass of champagne, money was cheap and credit was good. But now the music has stopped. Spain’s new European paymasters want the country to march in lockstep. They want the central government to sign austerity agreements that will bind the Catalans, the Basques, the Galicians and everybody else. Essentially, they are demanding that Spain recentralize, and that the national government set out tight national budgets that tell the ‘autonomous’ provinces what they can and can’t do. This may not work at all, and it cannot work for long. Spain is a democracy. People vote. Sometimes they vote for regional parties, sometimes they vote for the big national ones. If the central government is imposing tough fiscal limits on the provinces, it’s likely that over time — and not much of it — support will shift away from the national parties to the provincial ones. The Catalans will be sure that they are getting cheated by the poorer provinces; others will also believe that they aren’t getting their ‘fair share’.

more from Walter Russell Mead at The American Interest here.