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Spain unveils €9 billion plan to tackle Ukraine fallout

The national aid plan will help the country weather the ongoing fallout of the conflict in Ukraine.

Published: 25 June 2022 16:35 CEST

Spain unveils €9 billion plan to tackle Ukraine fallout

Pedro Sánchez arrives at the press conference at Moncloa Palace to announce the new direct aid plan worth €9 billion. Photo: JAVIER SORIANO/AFP

Spain’s government on Saturday unveiled a €9 billion national aid plan to help the country weather the ongoing fallout of the conflict in Ukraine.

Prime Minister Pedro Sánchez unveiled the package in Madrid which comes on the heels of a €6 billion injection in March for a scheme worth €15 billion overall, or “more than one GDP percentage point”.

The government also extended other measures taken in March and set to end on June 30 by another six months till the end of the year. Those include reducing the price of a litre of petrol by 20 euro cents.

For the second time in less than a year, it also reduced value-added tax on electricity from 10 to 5 percent, a move already announced by Sánchez earlier this week.

It decided to hand out “direct aid of €200” to the self-employed and unemployed, and increase pensions and disability benefits by 15 percent.

The measures aim to help consumers deal with rising inflation, which hit 8.7 percent in May, its highest level in decades.

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The plan for Catalonia to handle its own finances separately from Spain

The recent regional elections in Catalonia in May were hailed by political pundits as the end of the procés and turning the page on the Catalan question. The evidence for this was that separatist parties lost their majority in the regional legislature for the first time in over a decade and that the Socialists (PSOE) won the most votes overall.

However, since then things have been far from simple. The PSOE candidate, Salvador Illa, is yet to secure an investiture vote and the political horse trading is ongoing with ramifications for Prime Minister Pedro Sánchez’s fragile majority at the national level.

The controversial amnesty law pushed by Sánchez’s government then got clogged up in the courts, despite being approved in the Congress, and Catalan separatist parties managed to cling onto the role of speaker in the regional parliament. Catalan lawmakers elected Josep Rull, a member of the hardline separatist Junts per Catalunya, which is led by exiled former Catalan President Carles Puigdemont.

READ ALSO: Separatists retain speaker in new Catalan parliament

The important context to understand here is that the Sánchez government is dependent on separatist parties, including Junts and the more moderate Esquerra Republicana de Catalunya (ERC). After inconclusive general election results last summer, Sánchez essentially made a deal with the Catalans in exchange for their votes to maintain his position in La Moncloa.

Catalan finances and national politics

Now separatist parties, particularly ERC, are leveraging this support in order to gain concessions from the national government. The main way they’re doing this is through a demand for financiación singular — ‘singular financing’. That is to say, how Catalonia raises and uses taxes, and whether or not it should be allowed greater fiscal autonomy closer to something like the Basque model.

ERC secretary general Marta Rovira has said in the Spanish press that greater fiscal autonomy “is the minimum that can be demanded,” and alluded to the conditionality of their support for Sánchez: “The Socialists must know that if Pedro Sánchez is not able to move on the singular financing… it will be very difficult for ERC to support him. Salvador Illa must bear this in mind.”

la financiación ‘singular’

But what is singular financing? Former president of the Generalitat, Pere Aragonès, described the plan as “full fiscal sovereignty” in the election campaign, and essentially what the ERC is proposing is a bespoke fiscal arrangement for Catalonia that allows the Generalitat to collect (and keep) more of its taxes.

This would be a step, albeit financial rather than constitutional, towards greater regional autonomy for Catalonia and likely viewed as a political victory for separatists.

For critics of Sánchez, it would be more evidence of his capitulation to Catalans.

Singular finance is an idea inspired by the so-called “Basque quota”. This is basically a fiscal arrangement that allows the Basque government control of most of its taxes but means it must also contribute a set ‘quota’ to the Spanish government.

READ ALSO: Spain’s contested Catalan amnesty bill comes into force

In Catalonia, the long-term aim would be something similar: for the Generalitat to collect all (or more than it currently does, at least) of the taxes paid in Catalonia and then transfer to the Spanish state an agreed portion of that.

In terms of cash, this would mean that the Generalitat would collect billions more in tax (some estimates put it as high as €52 billion overall) and more than double the €25.6 billion it received in 2021 under the current model.

Proponents of the singular finance model also suggest that giving the Generalitat greater fiscal autonomy would do something to redress the so-called ‘Catalan deficit’, the difference between what the Catalan economy contributes to the Spanish state coffers and what it receives in return investment. Generalitat estimates for 2021 put this figure at over €20 billion in 2021.

Therefore, the demand is not only political but economic. The ERC claims that changing the fiscal model would do something to resolve what it calls the “chronic underfunding” of the region.

Negotiations for a singular financing model, which will be tied up in the investiture negotiations for Illa, which are themselves tied up in the fragile arrangement at the national level, will likely continue for many weeks.

If no candidate has won an investiture vote in the regional parliament by August 25th, further elections will be called.

READ ALSO: Which Catalans want independence from Spain?

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