One smaller sideline of the Eurozone’s financial crisis is news that Madeira has only just ‘discovered’ an extra €1 billion of borrowing that had not previously been disclosed. There’s a rather sketchy report from the FT here, and a better one from the Wall Street Journal Online here.
Madeira is an odd place. Although Portugal as a whole is highly centralised, Madeira (and the Azores, another set of distant islands) have a very high degree of autonomy. It has a population of around 268,000, and has had the same governor continuously in office since 1978 – a circumstance that often reflects a traditional, patronage-based politics. The ‘extra’ €1 billion isn’t huge in the overall scale of Portugal’s debts which are close to 100 per cent of its GDP (€229 billion) and given that Portugal has already been bailed out to the tune of €78 billion. Portuguese bonds were downgraded by Moody’s in July to Ba2, meaning they count as ‘junk’. This hole in Madeira’s accounts comes on top of a previous error of €568 million, and was only discovered by the diligent efforts of Portuguese and IMF statisticians – it wasn’t disclosed in Madeira’s own accounts.
But this nonetheless means that there has been undeclared debt amounting to €5850 per Madeiran resident, uncovered at a time when it further damages confidence in Portugal’s ability to manage its public finances (and when similar problems arising from sub-state borrowing are attracting scrutiny in Spain too).
This all adds to the problems of devolving meaningful borrowing powers to the UK’s devolved governments. There is a difference of view here, between the UK Government (where the Scotland bill and Command paper propose borrowing through HM Treasury), and the Scottish Government and the Scotland Bill Committee in the last parliament, which have called for a separate power to issue Scottish bonds. It’s hard to see how such incidents as that in Madeira will do other than alarm HM Treasury about the implications of such bond-issuing powers.