Spain’s deepest economic crisis in decades has disrupted the delicate power balance between the central government and highly autonomous regions like wealthy Catalonia, complicating the country’s austerity drive to renew investor confidence.
Spain’s 17 autonomous regions were granted autonomy in the 1978 Constitution recognising their nationalistic ambitions, but the bulk of power remained in Madrid.
The regions account for around 50 percent of public spending, almost all of it on health and education, but most have few powers to collect taxes, so depend on transfers from the central government.
Over the years, the culturally and linguistically distinct Basque Country and Catalonia have used their nationalist parties’ clout in the national parliament to win concessions from the central government and deepen their autonomy.
But now, with the euro zone debt crisis mounting, the economy in its second recession since 2009, and the regions blamed for overspending, the central government has passed new rules allowing it to take control of budgets of regions that cannot meet tough deficit targets as soon as May.
Spain’s regions missed deficit targets by a wide margin last year and international investors are keen to see signs that the central government will not let them overspend again as the country battles to avoid a bailout like neighbouring Portugal.
This week the central government rejected draft budgets from northeastern Catalonia and southern Andalucia, which together make up almost a third of the country’s economy.
The central government is changing rules so that regions can hike university fees and charge more for medication, moves that could well spark street protests. But so far marches and a recent general strike have been largely peaceful.
The regions are seen bowing to the tough controls because the crisis has eroded their credit ratings and they are depending on the central government for financing.
But even if they pull together to cut costs, Spain will struggle to meet its deficit goal of 5.3 percent of gross domestic product this year because the economy is in recession and falling income will hit revenue.
