Montero will present the new financing model between January and February of next year.

MadridBetween January and February of next year. This is the timeframe set by the First Vice President and Minister of Finance, María Jesús Montero, to present the new regional financing model. For the first time, Montero has committed to a specific date, doing so after a Fiscal and Financial Policy Council (CPFF) meeting in which she outlined the key features of the future system. This model is still being negotiated with the Republican Left of Catalonia (ERC) and the Catalan government (Generalitat). This is, in fact, the main reason why Montero postponed the CPFF meeting scheduled for this Monday.

"My idea is that the new [financing] model will come into effect in 2027," Montero stated at a press conference this Monday, following the meeting with the regional finance ministers. Before that, however, it will have to be approved. The challenge is to satisfy the Republicans and, at the same time, the People's Party (PP), which governs in most of the autonomous communities under the common regime. For now, the former are cautious and the latter very critical.

The PP rejects "bilateralism"

From the outset, the Popular Party (PP) has once again shown itself to be belligerent towards any proposal that implies "preferential treatment" for the Principality of Asturias. This also applies to bilateralism. "We will not accept that the separatists negotiate the [financing] model that will be imposed on the rest of the territories," warned Rocío Albert, the Madrid regional minister, after the meeting. However, the PP representatives, who do not deny that it is necessary to reform the current model, which has been pending update since 2014, acknowledged that Montero did not provide details of the project, so the criticism has focused more on the "lack of clarity." "They are proposing a reform that takes into account multilateralism and, at the same time, bilateralism; the unique situation and the general situation. It doesn't make sense," said Luis Alberto Marín, the Murcia regional minister (PP).

Within the ranks of the People's Party (PP), there is also suspicion of a complete overhaul of the model, although some voices, such as that of Extremadura's regional minister Elena Manzano, have acknowledged that it is a "step forward" compared to the 2021 reform attempt, when Montero only proposed addressing the adjusted population figure. Despite opening a Pandora's box that is the financing system, the PP regional ministers did not walk out of Monday's meeting en masse, unlike what they did at the last Fiscal and Financial Policy Council (CPFF) meeting in February, when the debt forgiveness for the autonomous communities under the common regime was discussed. This forgiveness stemmed from a prior agreement with Esquerra Republicana (ERC) for the investiture of the Catalan government. In this regard, the ministry intends to bring the debt forgiveness proposal to Congress before the end of the year.

Will there be ordinality?

The key to reconciling these positions, as the ministry seeks to do, is to propose a model that takes into account the special treatment promised to ERC within the framework of the agreement to invest Salvador Illa as president of the Generalitat, while also ensuring its applicability to the rest of the territories. Montero has avoided giving specifics and has limited herself to speaking "of items." "Until the last euro is finalized, we will not consider any overall figure [of the system] valid," she warned. The Minister of Finance explained that they are working to ensure the model distributes more resources and is applicable to all the autonomous communities under the common regime, which means "taking into account all the specific circumstances." Progress has also been made in increasing the regulatory capacity of the autonomous communities regarding taxes—Montero has not only opened the door to increasing their power over the taxes that make up the current basket of the model, as NOW already explainedbut also to broaden this basket.

The minister also indicated that they want to take into account the "fiscal responsibility" of the territories. That is, if an autonomous community practices, for example, tax dumping, as Madrid does: "I am in favor of taking into account elements to discourage tax dumping, but we are discussing it," Montero said. And, finally, she did not rule out that the principle of ordinality, the main demand of ERC, could be incorporated in one way or another, although the Treasury has always been very skeptical about it.

Meanwhile, the Catalan government is optimistic. "We come with a constructive attitude. We are pleased that the Spanish government is beginning to lay out the main points of a new financing model, and I ask the PP-governed regions to also come with this constructive attitude," stated the Minister of Economy and Finance, Alícia Romero, this Monday. The Republicans, on the other hand, are being cautious. In fact, it was they who suggested to the Ministry of Finance that they allow more time to negotiate and not present a final model at Monday's Fiscal and Financial Policy Council meeting, given that, in their view, an agreement has not yet been reached. However, this hasn't been detrimental to the Spanish government, considering the upcoming elections in Extremadura on December 21st. This means that Finance Minister Montero cannot ignore how this region fares in the new model so as not to harm the Socialist candidate in the elections, Miguel Ángel Gallardo. Nor is it clear what the outcome will be for Andalusia, where the minister will be a candidate in next year's regional elections. Montero has a difficult position; she can't present a plan that not only doesn't negatively impact the region, but also avoids the interpretation that Catalonia benefits most.

For all these reasons, the spokesperson for the Republicans, Isaac Albert, admitted this Monday that they expected "nothing" from today's meeting. "We expect nothing, because we understand that there is no final agreement. The agreement on the model must be with ERC and with Catalonia. The minister can explain the general framework, but she won't be able to go into too much detail because the agreement is not finalized," he stated at a press conference.

What about the budget?

This Monday, the Ministry of Finance also announced the deficit and debt targets and the spending rule (stability path) for the autonomous communities for 2026, 2027, and 2028. The big question here is what will happen once the Indian plan reaches the Ministry of Finance.

It's important to note that the deficit target hasn't changed since the last proposal for 2024 (0.1% of GDP). Back then, the path was derailed by Junts' opposition. Given that Junts has broken ties with the PSOE, there's no reason to believe an agreement can be reached, which not only leads the stability path to a dead end but also the national budget. If a deadlock is already reached over the deficit target (the necessary step for public accounts), the negotiations for the national budget will be doomed from the start.