The governor of the Bank of Spain, Pablo Hernández de Cos, was critical this Monday of the debt forgiveness for Catalonia and its extension to other communities. “The issue is the old problem of the financing system (…) There is a lack of incentives for prudent management,” he stated at a conference organized by the Financial Markets Association when asked about this section of the agreement signed by the PSOE and Esquerra.
Subsequently, Hernández de Cos explained to a group of journalists that he did not consider debt forgiveness a solution, because it could cause a lack of control to exist again in a few years that would make a new forgiveness necessary. “What needs to be changed is the system. As long as it is not closed, there will not be adequate incentives for the autonomous communities.” He thus joins the concern expressed by Moody’s and Standard
The governor laments that until now the deficits recorded in the autonomous communities “become not an indicator of good or bad management, but an indicator of insufficient resources.” He maintains that with this mantra, regional governments ask to be rescued from time to time, as happened with the creation of the Regional Liquidity Fund in 2012 and continues now with the agreement with Esquerra.
Therefore, what is urgent is to change and close the financing model with fiscal co-responsibility to control the spending of this level of the Administration. The closure means, in his opinion, introducing a clause in the new system that prohibits future bailouts, whether in the form of forgiveness or other types of measures.”
He was also critical of another investiture agreement, that of modifying the code of good practices to protect mortgagees with up to 38,000 euros of income instead of 30,000 as until now. “With the data we have we do not see the need for this measure.”
His general message to the new Government is that it must give “absolute priority to an ambitious reform program”, because, as he recalled, the Bank of Spain’s annual report describes two major challenges: “reducing fiscal imbalances and addressing the problems of low productivity, potential growth and convergence with the EU”. The governor insists that the current political polarization is not appropriate for these challenges. “I also continue to think that the reforms are of such a nature that if we want them to last over time they must be done with a consensus of the main political forces.”