The government in Spain has at last agreed on a financing deal for the country’s regions

The minority PSOE government has secured a landmark agreement on a new financing mechanism for the country’s regions, following two years of difficult and tense negotiations. The new framework will cost the central government an extra €11bn (about 1% of GDP) a year, with all regions expected to gain in absolute terms. The agreement should go some way towards diffusing the severe tensions that had built up between Madrid and the ruling coalition in Catalonia, but with the government struggling to cope with the severe economic downturn, the PSOE’s standing in the national parliament will remain precarious.

The minority Spanish Socialist Workers’ Party (PSOE) government, led by prime minister Jose Luis Rodriguez Zapatero, has earned a much-needed political respite after securing a landmark agreement on a new financing mechanism for the country’s regions. The agreement is the fruit of two years of difficult negotiations, mainly with the autonomous government of Catalonia, and promises to diffuse the severe tensions that had built up between the central government and the ruling coalition in Catalonia. Most significantly, the separatist Catalan Republican Left (ERC), which holds three seats in parliament, backed the accord, thereby signalling its willingness to continue co-operating with both Mr Zapatero’s government and the socialist-led coalition in Catalonia. This increases the likelihood that the ERC will support the government’s 2010 budget, which will be presented to parliament in September. …