The reasons behind Catalonia’s financial difficulties (Notes on the bailout request from the Catalan government)

The 5 billion euro bailout that Catalonia formally requested from the Spanish government yesterday quickly made the front pages of the financial press all over the world. It is sad news for all that what is probably the most dynamic and productive region in the south of Europe should find itself in such dire straits.

One very relevant factor that is not often given the weight it deserves is what The DailyTelegraph recently described as “the perversities of the Spanish tax system”. Of the total sums that Catalans fork over to the state’s coffers, an amount representing over 8% of the regional GDP, or around 16 billion euros a year, doesn’t come back to them in the form of public services or productive investments. The central government simply keeps the money for its own ends, including redistribution to other chronically unproductive regions. In practice, then, what Catalonia will be getting from the central government is its own money, which will then have to be repaid with interest. Again in The DailyTelegraph’s words, Catalans have been forced “to request a ‘rescue’ even though theysubsidize the rest of the country”.

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