The Valencian Community has ahead a titanic effort to address the tsunami of damage and loss that the heart of the province of Valencia has suffered due to the passage of the devastating cold drop. A response to the catastrophe that a Valencian Generalitat has to face, besieged by a deficit and a debt at the highest levels of Spain and that demands more resources from the State due to the underfinancing of the current autonomous system for years.
For this reason, among the priorities of the Valencian Government is that the deficit limit does not prevent the powerful increase in spending that will be generated in response to the catastrophe. And that also that pressing need for financing does not make you fat Even more so is its high debt, which exceeds 59.5 billion euros and is the second in volume after Catalonia and the first in all of Spain in relation to GDP per capita.
Regarding the first point, both from the Spanish Government and from the European Commission itself the message is clear. Weather funds to deal with emergencies like this natural disaster are considered exceptions and, therefore, they will not be considered when analyzing compliance with fiscal rules.
Apart from the deficit
The European Commissioner for the Economy himself, Paolo Gentiloniconfirmed yesterday that The Community Executive will not take into account public spending aimed at facing the consequences of DANA by evaluating whether Spain complies with the European deficit limit of 3% of GDP. The Valencian public deficit reached 3,300 million euros despite being reduced compared to 2022 and was the Spanish region with the highest volume of deficit per GDP, with 2.36%
What remains unclear at this point is whether the Generalitat will be able to increase its resources without having to resort to more debtaccording to sources from the Valencian Treasury Department. From the Government of Carlos Mazón The Ministry of Finance has been requested to enable a formula similar to extraordinary non-refundable funds with which the Covid emergency was faced.
During 2020 and 2021, the State used this instrument to inject resources into the autonomous communities to support the sharp increase in expenses such as health and social expenses in the face of the forced stoppage of the economy due to the health emergency. A demand that has not yet been attended to by María Jesús Montero’s department, according to reports from Valencia.
For now, the initiative of this type that has been included in the decree published in the BOE to alleviate the DANA contemplates that the deficit associated with the extra spending derived from reconstruction will not be computed, but without mentioning more alternatives. “The only thing that is included in the measures regarding the Valencian Administration is that more debt is allowed”comment sources from the Valencian Executive, who continue to insist on the need for a direct transfer of funds that do not have to be returned.
In the case of the Generalitat Valenciana, its coffers entered that way almost 2.9 billion euros in two years –1,400 million in 2020 and 1,485 million in 2021–. These annual amounts are also precisely similar to the funds that the Valencian Executive demands year after year for underfinancingfor which it receives less income per inhabitant than the majority of CCAA of the Common Regime.
A figure that, however, is not comparable to the strong impact that DANA has had, especially with regard to the destruction and extensive damage to homes, businesses, companies, vehicles and all types of infrastructure in some regions with nearly 840,000 inhabitants affected to varying degrees.
Europe, the other source
Among the alternatives to try to feed the enormous amount of resources that will be necessary, the Minister of Economy himself, Carlos Bodyhas already announced that work is being done to redirect funds that have not yet been used from the Recovery and Resilience Facility (RRM) for the post-pandemicwith financing from the European Union and the Next Generation. The intention of the Spanish Executive is to present before the end of this year a modification of the recovery plan to obtain the approval of Brussels, although without yet being clear about the amounts.
The Valencian Administration also trusts the European Union to be able take on the work to reactivate the economic fabric and rebuild all types of networks and infrastructure seriously damaged by the flood. In fact, Spain has already requested that the European Union Solidarity Fund be activated, the extraordinary instrument contemplated to support member states that have suffered natural disasters such as earthquakes, floods, fires or health emergencies.
From Valencia, those responsible for the state government have also been urged to ask the creation of an extraordinary fund for economic and social damages by DANAsimilar to REACT, which was created for the pandemic, in addition to aspiring to resources from the European Investment Bank (EIB), and other available mechanisms such as the Agricultural Reserve or other programs already underway.
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