Money talk - Citizen bonds

Bond here. James Bond. Well not exactly, but the word bond has been on many a lip in Barcelona in recent days. And not all the sentiments that have accompanied it have been as soft spoken as those we are accustomed to hear from the lips of the legendary screen character.

As well as the figurative bond created between the citizen and the government, ie. they elect to get into debt on our behalf—sorry, to run the kind of services they would really like to see but are not sure how to pay for—last month saw the Catalan government issue a financial one-year bond sold in the offices of many of Spain’s best-known banks and caixes. It has a coupon of 4.75 percent, brings the bank selling it a commission of up to 3 percent, and costs the Catalan Treasury an arm and a leg to insure against lack of uptake.

The problem is, as ever in these difficult times, how to pay for the hole left in public finances by the collapse of the housing boom and the drying up of all that lovely VAT revenue which flowed into the public coffers on the back of house sales. And in Catalunya, the issue is doubly complicated, since the region is not in deficit, but in surplus—it’s just that the surplus becomes deficit in the name of ’solidarity‘ as much of the revenue flows out to be redistributed to other parts of Spain.

During the boom times, people became accustomed to a quality of life that seemed natural in a country apparently getting richer with each passing day, but now they find it hard to accept that this is no longer the case, and the harsh reality of that is they may actually be getting poorer. Not a popular message for politicians to put across, especially at election time.

So rather than make cuts, which is what, unfortunately, the new government will inevitably have to do, the Catalan administration decided to kick the can a bit farther down the road, one last time, since failing to pay nurses or teachers their salaries was hardly the best move on the eve of the recent Generalitat elections.

Most of the criticism of the bonds has been levelled at the heavy price paid (nearly Greek levels) to issue them. But really, with the financial markets closed to them and throwing themselves at the feet of the Spanish to ask for a bailout an unfeasible option at this sensitive point, the Catalan government was really left with little alternative but to put up or shut up. The latter was, as I say, unthinkable.

Well, a citizen’s word is his bond, so all those whose patriotic spirit was touched by the moving appeal to their pockets better just hope that a government’s is too.