Spain's Regions Ooze Red Ink
New Government Raises Taxes as It Discovers Unreported Arrears

The new Popular Party government of Spain is slashing expenses and raising taxes as it discovers a mountain of undisclosed debt.

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Amiel Ungar,

Mariano Rajoy
Mariano Rajoy

When the Spanish Popular Party of Prime Minister Mariano Rajoy returned to power after 7 years in the opposition  they knew that the Spanish cupboard was bare. \

What they did not know was that the cupboard was not only bare but already mortgaged to the hilt..

The new government found a mountain of debt that had not been reported, meaning that Spain will not wind up the year with a deficit of 6% but with a deficit of 8%. The shortfall is compelling the government to raise taxes, something it promised in the campaign not to do. It justified the measure by conceding that the statistics that it inherited from its predecessor were, in the best of circumstances, overly optimistic.

The major culprits in the unexpected expenses have been Spain's regional governments. In an effort to assuage both Basque and Catalan nationalism, the central government, since the death of fierce opponent of devolution Generalissimo Francisco Franco in 1975, devolved a number of functions to the regions. As opposed to the American system, where the same sharing of power occurs across the board with all states, in Spain the historic national regions received more prerogatives than others.

With the advent of democracy after Franco, the two major parties frequently needed votes from the moderate nationalist parties to form a majority and they traded concessions to the regions for national power.

Since 1982, the Socialists have been the dominant party in Spain with the exception of the years 1996-2004 and the past week - and this aided devolution. Historically, the Spanish right has been the party of centralization, whereas the left has been linked to decentralization. The cohesion policy of the European Union in which Brussels would subsidize particular regions, particularly economically disadvantaged ones, to bring them up to speed has also enhanced regionalism.

By bypassing the national governments and dealing directly with the regions, the EU helped weaken the national governments and the nation state. This may have even been an ulterior motive of Brussels.

In any case, the devolution did not bring greater efficiency, but merely another layer of government waste that resulted in the production of white elephants. The current economic crisis may swing the pendulum back to greater financial control by the central government.