The Spanish government's first step toward forgiving Catalonia's €17 billion debt

MadridThe Council of Ministers approved this Tuesday the draft bill to forgive part of the debt that the autonomous communities have accumulated with the regional liquidity fund (FLA), the mechanism created in the wake of the financial crisis due to the inability of the autonomous communities to access the markets. Catalonia will see approximately €17 billion lost. The Spanish government formalizes the pact it reached with ERC for Pedro Sánchez's investiture in 2023, although the First Vice President and Minister of Finance, María Jesús Montero, emphasized that it is a measure that benefits all regions. "It is a false dilemma to suggest that when an agreement is reached that is good for one part of the territory, it is an insult to the whole. The PP does this when it comes to negotiations with Catalan parties," she criticized at a press conference at Moncloa Palace.

The overall volume of debt that the State will assume from the communities – not only with the FLA, but also with the commercial banks – amounts to approximately 83.2 billion euros, according to the calculation methodology established in February and agreed upon by a Fiscal and Financial Policy Council (FFPC). In absolute terms, the most benefited regions would be Andalusia (€18.791 billion), Catalonia (€17.104 billion), and the Valencian Community (€11.21 billion), but in percentage terms, the Canary Islands could see 50% of their total debt exonerated. Furthermore, Montero specified that the regions will be able to save between €6.6 and €6.7 billion in debt interest, which, she assured, they can allocate to social spending—provided they comply with fiscal rules. In recent months, there have been differing opinions on whether the interest savings can be used to increase spending—Airef warned against it—or should be reserved to wipe out debt, and now Montero has argued that it should be. "It is false that the regions cannot use the resources and that whether or not they qualify for debt forgiveness is the same," she stated.

Although the Spanish government argues that 7 out of every 10 euros forgiven would benefit PP-affiliated communities, Alberto Núñez Feijóo's party maintains its refusal to accept a proposal that they consider a "trap." The spokesperson for the Popular Party in Congress, Ester Muñoz, asserted that no regional president from the PP will disassociate themselves from this position and called it a "fantasy" that anyone would decide to request it. "They are people of their word," she emphasized, and recalled that they have signed two documents in which they reject the measure, which, according to the PP, means that "all Spaniards" must assume the "consequences of the mismanagement" of the independence movement, reports the Spanish newspaper. Andrea Zamorano.

According to the Minister of Finance, this is an argument that the PP is "making up" to try to explain its negative vote when the draft bill reaches Congress. In this regard, Montero wanted to make it clear that the fact that the State assumes part of the debt of the autonomous communities does not increase the total volume of Spain's debt, but rather a simple reconfiguration. Despite the fact that the Andalusian president, Juanma Moreno, insisted this Tuesday that he will not adopt the measure, the first vice president of the Spanish government is convinced that all territories will eventually sign the agreement "regardless of the posturing" the PP puts forward in the Lower House.

The calendar

The Spanish government estimates that the entire process will be underway by the first quarter of 2026. Executive sources are confident that there will not be an excessively tortuous parliamentary process, although Compromís has already announced that it will present amendments to ensure that the debt forgiveness for the Valencian Community amounts to approximately €18 billion. Furthermore, Sumar wants the debt forgiveness to be conditional on the regions not engaging in tax dumping, although Montero's entourage sees this requirement as difficult to establish if the "political autonomy" of the regions is to be preserved. The timing is particularly relevant because Montero is a candidate in the Andalusian elections, scheduled for the summer of 2026 at the latest. The Spanish government suspects that the Andalusian PP leader, Juanma Moreno, may want to wait until after the elections to accept the aid.