Cristóbal Montoro: “The financing system will change when the country recovers”

The Minister of the Treasury, Cristóbal Montoro (Jaén, 1950), has just presented the state budget for the next year – it already has a dozen – and has again provoked criticism from the economic and political world of Catalonia. Replica that the investment of the State is not the key of the recovery, but the cut of the deficit, and is optimistic about the future of the Spanish economy. In line with the President of the Government, he does not propose any economic offer to negotiate with the Generalitat, although he admits that the State is keeping Catalan public debt.

The investment item allocated to Catalonia in the budgets of 2015, 9.5% of the total, has provoked strong criticism at a politically charged moment. Why has it been so short in the most significant economic community? There was a certain expectation that the central government would send a message that what is happening in Catalonia not only worries him, it also makes him act with proposals and offers.
During these years of crisis there has been no choice but to reduce spending and investment, since the objective of the State has been to save the expenses associated with social items and the welfare state. In 2012, unemployment, non-contributory pensions and minimum complements of the lowest ones amounted to 33,000 million. In 2014, 27,000 million, and in 2015, thanks to lower unemployment, will amount to 23,000 million. Therefore, we have had to reduce investment, not only in Catalonia. Now it is said that the 2015 budget is the return of the investment; but it is not true, investment represents 0.8% of GDP. The goal of 2015 remains to save social spending and reduce the deficit.

But, in any case, one more year the investment is very far from the economic weight of Catalonia, and already add many …
The Government’s objective is to finance Catalan public services, from the central State, unemployment and pensions, and, through the communities, education and health. This is first our obligation and then the responsibility of the communities. The social expenditure items that I mentioned before (unemployment, pensions …) go mainly to the most populated communities, especially Catalonia.

The Catalan business organizations, further away from the political battle, have joined the complaints …
The criticism of the bosses is not correct, although I recognize that they are made by all the territories. It is true that investment has been reduced everywhere, but this has not prevented growth from recovering. Catalonia is already growing and with very little public investment. The recovery is not coming hand in hand with public investment. Remember that already in the previous economic cycle, the boom of public investment came when the economy was already very accelerated. Public investment is never the basis or lever of growth recovery.

Although it always helps, especially when recovery is slow …
Some, yes, as the Mediterranean corridor, which benefits Catalonia, and which is one of the investment priorities of the Ministry of Public Works and is included in next year’s budgets.

If the businessmen ask for it, for something it will be …
I believe that businessmen should be concerned about the conditions of business financing, taxes and the tax reform we have put in place -to lower costs and have more resources to invest-, for the market unit or for the framework of labor relations. In this they must demand improvements and reforms.

Nor put on the table proposals on a new system of regional financing.
The finance minister must speak with data and figures. Sometimes differential financing systems are claimed as if they were the panacea, but which community is growing the most, Catalonia or those that have a regional or concert system? Catalonia is the one that grows the most. The regional financing system is attributed functions and effects that do not correspond to it. Its objective is to finance public services in the communities, nothing more.

In short, it is not for the task of proposing a new model, a way to advance proposals that address some of the demands made from Catalonia …
We can not distribute what we do not have. We finance social services with effort, that’s what we are in, and we do not finance economic activities, only public services. The new financing system will come when we have settled the recovery and growth returns and public revenue grows. Remember that just two years ago, CiU was asking Mariano Rajoy in Congress to ask for the rescue of Spain.

Neither have attended the list that President Artur Mas delivered to Mariano Rajoy in their last meeting …
The Govern de Artur Mas is for another thing, it is not for that negotiation. He is about to vote to leave. How are you going to negotiate on that list of points? We are focused on solving the economic crisis and creating jobs, maintaining the welfare state and advancing European integration. Now Spain is a leader in growth in Europe and Catalonia leads that process. And the reforms we approved, the tax reductions, the improvement of financing, the recovery of credit, benefit Catalan companies.

Have you chosen not to advance any proposal in the field of relations between Catalonia and Spain, as if they thought that things are fine as they are and it was not necessary to propose changes?
That is not true. We have done many things. I am thinking, for example, of the Autonomic Liquidity Fund (FLA), which subscribes to the renewals and debt issues of the autonomous communities that can not access the debt markets. Last July we approved a reduction in the financial cost of the FLA and, in addition, a postponement in the maturity schedule of that debt. The financial cost of all this is assumed by the State. This measure represents for Catalonia a saving of about 1,700 million euros. Now we are launching a social FLA so that the municipalities that are financing social activities through agreements with the autonomies receive the money and are not in debt to cover actions for which they do not have resources.

The FLA is the first creditor of the Generalitat, with almost 50% of the total debt. Has a possible waiver to collect it been raised, a waiver to compensate, even partially, for Catalonia’s fiscal deficit?
In practice this debt is already being left by the State, we are sharing it, it is becoming the debt of the entire State. It can not be condoned because Brussels would force us to transfer that condoning to the deficit. It would also convey an idea that communities do not manage properly and would not be good, especially in the face of markets.

What do you think that communities like Valencia, which admit practically their insolvency, announce tax cuts?
As far as I know, at the moment it has only been an announcement. If your goal is to accommodate your rate to the new one that incorporates the tax reform, I see no problem. Although we must be extremely cautious, these things can not be done for political reasons, because then it is not credible. If an autonomous community complains that it has serious financial problems, then it can not make certain cheerful announcements. And in addition, the idea that administrations should act with extreme financial prudence can be difficult. I must also tell him that in the case he mentions, they have told me that the reduction will be practically symbolic.

Sometimes, the Minister of Economy, Andreu Mas-Colell, says that if the Catalan economy has been able to perform with a fiscal deficit of up to 9%, for Spain it would not be impossible to wipe it, since it would represent less than 2% of GDP, 18,000 millions of euros…
And where would more money come from to cover that? The central administration has already made many cuts to maintain social spending. Ministries have greatly reduced their weight.

If the Catalan problem continues to rise in temperature, are you not afraid that markets will take their toll, trigger the risk premium and put public accounts at risk? Some rating agencies have already warned …
There are always risks that counteract creating trust and growth. The markets issue warnings, but what counts is reality. And the cost of placing public debt is very low and remains that way without alterations. At the same time, the flow of new credit to the economy continues to improve and is already above even the Eurozone average.

Going back to budgets, some people consider them too optimistic …
We are not optimistic, we have chosen the consensus scenario and we agree until the tenth. And that does not usually happen. Nobody denies that the economy is in a recovery phase, especially in view of membership data and job creation. It could certainly go faster, but never created jobs with such a low growth rate and this change should be valued.

But from Europe, the first merchandise market and the first issuer of tourists, come very cold airs …
Europe worries me, but I am also aware that the European institutions, especially the ECB, are acting, as they have done, with more or less decision, throughout the crisis. The new European Commission will react. By the way, it is curious that those who now issue more warnings about the possible recession in the Eurozone are the outgoing commissioners. What had they done until now?

The outer front returns to the red numbers. Imports grow, and export volume growth slows down …
The key is to match a sustained increase in domestic demand while maintaining a good tone of exports to avoid the classic bottleneck for dependence on foreign countries. We are the country with the second largest external debt, and that is why reducing dependence from abroad and reducing the public deficit is key for the recovery to arrive and be sustainable. But the Spanish economy is already on a path of sustained growth thanks to the reforms and budgetary policies of expenditure control applied.