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Isabel Rodríguez Tejedo, School de Economics, University of Navarra, Spain

The other elections

Fri, 27 May 2011 14:57:34 +0000 Published in Expansion (Madrid)

With the electoral binge already turned into a hangover, it is time to think about what comes next. And what follows, both at the local and regional level, is a time of economic difficulties, uncertain revenues, contractions of expense and deficits to be controlled. The Spain of the regions brings with it possibilities and benefits, but it also demands commitment and responsibility from our politicians and subnational administrators.

City and regional councils have instrumentalized a substantial part of the public expense that was promoted as an engine to get out of the crisis. Logic suggested that, better aware of the real needs of citizens, they could select projects whose implementation, in addition to increasing aggregate demand, would have productive potential in the longer term deadline. Whether the assumption was fulfilled or not would give rise to much discussion, but what is beyond dispute is that the times of increased public demand are behind us. Chased by notable drops in income and with bulky expense items, economic difficulties have settled in many communities and city councils. With the elections settled, it is to be expected that many painful decisions will be taken.

It is not a question in this case of containing public consumption to avoid overheating the Economics (no one doubts that this is not the time), but of keeping deficit levels at bay that threaten stability in the short term deadline. Some voices, fortunately few, have called for the stabilizing role of our subnational entities, although it has been decades since public sector theory and fiscal federalism identified it as a problem that, by its nature, does not fit well with the local sphere. Of course, municipalities come in all sizes, and it is not the same to govern the smallest town hall in Spain as one of our large cities. The communities have somewhat more capacity to influence these problems, although still in a limited way.

It is not, therefore, a question of active macroeconomic policy, but of budgetary control.2010 ended with record amounts of debt, although the autonomic debt (both in absolute amounts and expressed as a ratio over GDP) presents different faces depending on which part of Spain we look at, and the differences are quite notable. Without going into details, I would only point out that more than one might be surprised by the ranking.

The markets are not blind to the status that the autonomous communities are experiencing, and the exercise of budgetary control required by our Economics must be shared by all levels of government. The distribution of the effort so far has fallen more severely on the central administration, giving greater leeway to the autonomous communities. Transparency has increased, which is good for the system, even if public companies are still somewhat of a blind spot. But beyond information, it is imperative that the regions' commitments are fulfilled.

The committee of Fiscal and Financial Policy did not give in passing the balance plans of several autonomies at the end of April, and one of them has repeated that it has no intention of complying with the goal, which it describes as destructive. The economic difficulties of the communities and local authorities have raised uneasy voices, especially among those who fear that the possible political changes of these elections will bring surprises of bills "hidden in the drawers". Although Vice-President Salgado has assured that no hidden deficits are expected to emerge, the one that already exists is worrying. The debts owed by local and regional authorities to their suppliers are substantial, and particularly damaging to small and medium-sized companies. The recent measure that will allow SMEs to offset state taxes against central government debts does not extend to sub-national debts, and is in any case a sad consolation for those who find themselves in need of liquidity to finance the normal operation of their businesses.

For the sake of responsibility and credibility, the time has come to consider elections. Not political, but economic, and here it is convenient to choose wisely. It is clear to no one that, as very open economies, some communities can benefit from the efforts of others, and that where regional commitments are not met, the state can (but perhaps should not) compensate in the face of the global goal . Let us hope that the choices, this time not the political ones but the others, will be the right ones.