Regional debt relief leaves taxpayers footing the bill.
Spain’s Socialist-led government has recently forgiven €83.3 billion in debt owed by fifteen of the country’s seventeen autonomous communities. Though part of a deal struck between Prime Minister Pedro Sánchez and the Catalan separatists on whom his minority coalition depends, it doesn’t just benefit the wealthy region of Catalonia. Andalusia, historically one of Spain’s poorest regions, would be the biggest beneficiary, with almost €19 billion, or 47.2% of its total debt, to be written off. Second is Catalonia (currently under Socialist control), which would have €17 billion canceled; and third is Conservative People’s Party (PP)-ruled Valencia, with €11.3 billion to be forgiven. As ministers are keen to highlight, this is not just favoritism towards socialist allies: seven of every ten euros forgiven would come from communities controlled by the PP.
Requesting debt forgiveness is voluntary—a move that has already set Spain’s fiercely independent regions, most of them governed by Conservative administrations, against each other. Those who join Catalonia in accepting the deal will have their debt transferred to the central government. Though María Jesús Montero, Spain’s finance minister and first vice president, has not explained how the scheme will operate, she has announced, amazingly, that it won’t increase Spain’s national public debt.
Montero described the decision as a “clearly positive and generous measure.” By enabling autonomous regions to redirect funds that would otherwise go to debt servicing into social services, she said, it “reinforces the welfare state.” It’s surely no accident that Andalusia would be the biggest beneficiary. Traditionally a Socialist stronghold, it has been under the control of Conservative president Juan Moreno since 2019. But Montero, an Andalusian who held key posts in the region’s government between 2004 and 2018, announced in January that she will run as the Socialist candidate for the presidency in Andalusia’s next elections, due before June. Some speculated that Sánchez had forced out her predecessor as secretary general of the Andalusian Socialists, Juan Espadas Cejas, seeing Montero as more likely to beat the PP. Montero is currently involved in a bitter dispute with Moreno about a potential new hospital in Cádiz, with each blaming the other for construction delays.
Given this background, it is not surprising that Moreno has emerged as one of the debt initiative’s strongest critics, arguing that it is yet another concession from the central government to Catalan separatists, designed to help Sánchez pass the first state budget since 2022 (budgets since have been blocked by insufficient cross-party support). Regional leaders from the PP, who control twelve of the fifteen regions included in the package, have come together in support of the Andalusian leader. Both Moreno and María José Sáenz de Buruaga, president of the northern region of Cantabria, have described it as a “trap.” Division over the initiative has reversed the traditional dynamic, in which wealthy regions such as Catalonia resent subsidizing the poorest areas, and complain about contributing more in tax revenue than they receive in public investment. Now Moreno and Buruaga argue that Andalusia and Cantabria will end up shouldering a portion of the Catalan debt, in the latter case by €523 per person (according to Buruaga).
Madrid’s PP president Isabel Díaz Ayuso has also rejected the offer out of “responsibility and respect for the truth”—because, as she points out, the regional debt is merely changing hands, not disappearing. Ayuso claims that as a result of Catalonia’s write-off, every citizen of Madrid will owe €483 more, while every Catalan will owe €410 less. Similar discrepancies could occur throughout the country, as residents of communities that don’t accept the transfer (most of them, including the poorest) foot the bill for those that do, including the northeastern region that generates 20% of Spain’s GDP. It’s a potential reversal of an imbalance also seen at the EU level, with debt mutualization schemes usually supported by struggling Mediterranean countries but opposed by wealthier northern nations. Now, it’s as if Germany or France want to offload their debt, but Spain and Italy are refusing.
Still, Montero claims that it will be “very difficult” for the PP’s regional governments to justify refusing the transfer to their electorates. She argued that the initiative “fits perfectly” with her government’s policy of allocating more funds to the regions since it took power in 2018. It also adheres to the leftist coalition’s overarching fiscal narrative, which can be summarized as follows: nothing costs anything. Every time Sánchez announces a huge boost in welfare spending, or borrows billions more from the EU under the Next Generation scheme, he insists that the Spanish taxpayer will not be worse off and that the public debt, currently at 103.5% of GDP, won’t increase.
So it is with the latest strings-free scheme, which hinges on whether Spaniards, as taxpayers, are classified as residents of a specific region, or of Spain. If Catalonia’s debt is first transferred to the central government, then surely part of it should boomerang back to the region’s residents, repayable by them not as Catalans but as Spaniards? Of course that would nullify any potential gains, making the transfer pointless. Yet if it doesn’t, the redistribution of the tax burden would be blatantly unfair. There is also the objection that, if they take on other regions’ debts, non-participating communities such as Andalusia and Cantabria will be limited in their ability to spend more on social services—precisely what the scheme was designed to enhance. Again, Montero has yet to engage with such issues publicly.
Finally, the scheme is not as egalitarian as it might appear. When calculating the amount of forgiveness to be offered to each region, income tax (IRPF) rates were a crucial factor. More debt will be forgiven in those regions that increased IRPF between 2010 and 2023, and an additional €917 million made available to those that have augmented tax regulation. Montero claims that it “would be inconsistent to benefit those who assume the most political risk,” which effectively means that economically libertarian regions such as Madrid will be punished, while those with the highest taxes and most bureaucracy will be rewarded. This hardly supports the government’s claim that the debt transfer benefits all regions, regardless of whether they’re governed by the left or right.
In all key respects, the initiative is comparable to the financing scheme announced by Sánchez’s government in July, which would allow Catalonia to collect its own income tax. Though supposedly of potential benefit to all of Spain’s regions, on closer inspection, it seems designed primarily to keep Catalan separatists on board. Only two other autonomous communities are likely to join Catalonia in accepting the debt transfer—Asturias and Castilla-La Mancha, both Socialist-controlled, with a combined debt of €6.6 billion (added to Catalonia’s, that makes €23.8 billion). If they do, regional resentment and animosity in Spain will only increase.
