Friday, August 22, 2008

The Things You Achieve With A Bit Of Iniciativa

We’ve been given another lesson this week on the dangers involved in trying to run a minority government. Only a last minute deal with Iniciativa per Catalunya, the Catalan wing of Izquierda Unida, avoided an unwanted appearance by Zapatero in the Spanish parliament to explain the government’s position on the funding of the country’s autonomous comunidades. Iniciativa’s deal with the government earned them some criticisms from the Catalan nationalists for breaking the common front they had tried to maintain in the battle to get a better funding deal. The same nationalists could have sided with a proposal from the Partido Popular to force Zapatero’s appearance, but in the end they decided that it wasn’t so essential and so it will be Finance Minister Pedro Solbes who will gently induce a parliamentary coma with his detailed explanation of the finer points of the issue.

The real danger for the government is that failure to present a funding plan acceptable to the Catalan parties means that they may not have sufficient parliamentary support to approve next year’s budget. It’s not the end of the world, the existing budget can always be extended, but it would be a highly symbolic demonstration of isolation for the government. Apart from that, with the economic situation expected to be even worse next year then the government budget needs to be adapted to deal with that. With tensions running high between the governing PSOE and the Basque nationalist PNV, the quickest route to a parliamentary majority still lies in an understanding with Convergencia i Unió.

All the coverage of the funding issue might lead people to believe that it’s just an issue between the government and Cataluña. This is not really the whole story, the current funding mechanism is based on a 10 year old census which doesn’t take into account the impact of most of the immigration that Spain has received in that period. Given the uneven distribution of immigration, that means that some regions are more affected than other in terms of greater demand for services that is not being adequately funded. The other key issue is that of how redistribution of income is calculated between the wealthier regions and the poorer ones. This has led to some strange alliances as the richer regions call for a system which prioritises population and which restricts the redistributive effect to key services. The poorer regions want more weight given to other factors such as geographical extension or age distribution in the population.

In the boom years the way out for the government would have been to inject more money into the system so that everyone was kept happy. Now tax revenues are falling and there isn’t a huge pot of money to solve the issue. The way forward probably lies in creating a system so complicated and with so many different factors that nobody can really understand it. This would be a Solbes kind of approach to the issue, but it may not be enough. According to their agreement with Iniciativa the government now has a three month deadline to reach an agreement with Cataluña, it’s not going to be an easy task but the chances of this government seeing out its full term could possibly depend on the outcome.

No comments: