Eliminating 1,741 million euros of debt, and the Balearics say no

Four years previously, José Ramón Bauzá of the PP had become Balearic president. That was a time characterised by the financial crisis. Bauzá was austerity personified, a personality moulded to no small extent by PP central office. It was often claimed that Bauzá’s austerity in the Balearics was a model, a test bed for what Rajoy intended if he became prime minister later on in 2011, which he did.
In advance of the 2015 regional election, which was to prove disastrous for the PP, Bauzá announced a raft of tax measures. He was able to, he proudly stated, because of the “great efforts” made to overcome the “grave situation” with which he had been presented in 2011. There was to be a tax giveaway of 250 million euros. At the same time, spending was to increase; it would be 362 million euros higher than when he had taken office. Bauzá and the PP had broken the back of the crisis. There was no shortage of cries of “electioneering” from the opposition.

The Balearic economy was actually doing quite well by the time Bauzá departed. Growth, he could maintain, had been assisted by tax cuts, even if these came late on during his administration. Of way greater importance had been the tourism bounce-back and revived spending by visitors from the main tourism markets. Balearic economic growth, in truth, owed little to local government policies.
Pons and PSOE couldn’t really explain an economy in reasonable shape in terms of the export factor of tourism, as he and his party would have known full well that they would also be reaping the benefits. Balearic governments can in a sense sit on their hands and do nothing, confident that airlines, tour operators and others will do their economic work for them. But they certainly can’t admit this. So despite a recovering economy, one inherited from Bauzá, the 100-days analysis diverted attention to Madrid and to the debt legacy.

When Bauzá left office in 2015, the regional debt stood at 8,330 million euros. The highest ever debt, it also represented the highest percentage of GDP ever (29.5%) and it was 75% greater than what it had been in 2011 - 4,774 million. Of the 2015 debt, 3,394 million euros were in the form of bank loans and government bonds. Four years earlier, the debt exclusively comprised these loans and bonds. There had therefore been significant repayment. However, a crash in tax revenues and a less than advantageous regional financing system had been compounded by a Madrid edict stymying regional governments’ borrowings (and these were in any event increasingly difficult).

The main consequence of this was that the regions had to turn to the state for aid. There were bailouts, the scale of which varied according to comparative sizes of regional economies. From 2012 to 2015, therefore, the Bauzá government was loaned 4,937 million euros by the state, a debt which in itself exceeded the whole debt as it had been in 2011. This was the Bauzá legacy that Pons was at pains to highlight.

The blame for the size of the Balearic debt has often been laid at Bauzá’s door. It clearly rose massively, but the Balearics, like other regions, were left with little alternative but to be bailed out by the Spanish Government. The criticisms of Bauzá’s economic management were over the top, and the debt, the critics conveniently overlooked, owed at least something to what he had inherited.
If one goes back to 2003 and the start of the second Jaume Matas PP government, the regional debt was 858 million. Four years later it had more than doubled to 1,798 million, attributable - it has been argued - to the grand Matas projects, e.g. the Palma Metro and the Palma Arena. There may be some truth in this, but the debt in 2007 equated to just 6.8% of regional GDP. Under Matas’s successor, Francesc Antich of PSOE, the debt rose to the 4,774 million that Bauzá was to inherit - 18.1% of GDP. That increase does have to be considered in light of the financial crisis, the Antich period of administration having been marked, among other things, by the issuing of so-called patriotic bonds. The public could buy these bonds.

So the legacy that Pons emphasised in 2015 wasn’t solely that of José Ramón Bauzá, given of course that there had to be repayment of accumulated debts over the period of three administrations that had risen almost tenfold (at the start of the millennium, by the way, the debt was around 500 million). The legacy was in fact to lead to further increases. The peak was 9,120 million in 2020. The provisional figure for the 2024 debt is 8,121 million euros. One billion has been eliminated, the second Armengol government having cut the debt by 3.2%, and the Prohens government having shed 458 million.
But the Balearics are still saddled with a debt that amounts to around 20% of GDP, which is less than the average percentage for all regions (22% as of the third quarter of 2024). The Spanish Government has proposed a waiving of some of the debts owed to it and which principally correspond to the years 2009 to 2013. The finance ministry has proposed a total of 83,252 million euros, there being a keenness to improve regional finances so that regions are in a better condition to borrow from the markets and so not continue to rely on the government.

The highest debt is Catalonia’s - 88,917 million, over ten times that of the Balearics, and 30% of regional GDP.Valencia’s 59,498 million debt equates to 41% of GDP. These two regions, along with Andalusia, stand to receive the most consideration from the finance ministry. Catalonia will be excused 17,104 million, Valencia 11,210 million, and Andalusia 18,791 million. The figure for the Balearics, the fifth lowest, is 1,741 million.

When this was sprung on regional finance ministers at short notice at last week’s meeting of the Fiscal and Financial Policy Council, Antoni Costa of the Balearics rejected the waiving of the debt. It had been cooked up under an agreement between the Spanish Government and the ERC Esquerra Republicana de Catalunya. He accused the finance minister, Maria Jesús Montero, of disrespecting the citizens of PP-run regions, adding that “the mere thought of excusing debt and its moral risk implies an unusual situation in a democracy, a message that you can spend whatever you want and be forgiven later”.

This said, regions with PP governments, such as Andalusia and Valencia, stand to gain the most. Was Costa truly arguing from a moral standpoint or was there something else? A scheme involving the ERC appears to be unpalatable, while President Prohens has described as “an insult” the fact that the debt forgiveness for Catalonia would equate to 2,000 euros per person as opposed to 1,400 in the Balearics. Moreover, was it not the case when the whole issue of waiving debt first arose and was presented as very beneficial to Catalonia, Prohens demanded equal treatment for the Balearics?

Where would this opposition leave the Balearic Government were Pedro Sánchez and his government able to get approval for the debt-elimination proposals from Congress? Would it refuse the offer of wiping off 1,741 million euros of debt, just over 20% of the current total, an amount amassed by both PP and PSOE administrations in the Balearics? The electorate might need some convincing.