Our Foral Treasuries,
part of our historical identity

The implementation of the Agreement

Birth of the Economic Agreement

In 1876, after the second and last Carlist War, the Fueros were abolished, but not completely. Through the Law of 21st July 1876, Antonio Canovas del Castillo imposed the obligation for the provinces to make a contribution to the Treasury and to send men to the Army. A year later, due to the refusal of the Deputations to fulfil these obligations, Canovas announced the substitution of the Foral Deputations with Provincial Deputations, which were, to start with, on equal terms with the ones in the rest of the Spanish State. Canovas had to solve the problem of how to make the Provinces effectively pay their taxes in a State where there was neither an administrative structure nor accurate statistics to assure the obligation’s fulfilment. The provisional solution was to reach an agreement with the Provincial Deputations, made up of individuals who were not so unwilling to obey the Law of 21st July. Under the agreement reached, the Deputations assumed the payment of the amount the Ministry of the Treasury could have supposedly collected through its own means. Therefore, the Deputations were in charge of collecting the main taxes in force at that time – those included in the agreement. The validity period of the agreement was eight years. This agreement is known as the “Economic Agreement”, due to the fact that in the preamble of the Decree of 28th February 1878 which regulated it, there was a reference to the obligation that the Provinces be included within the “Economic Agreement” of the nation.

As for the Deputations being able to pay the amount due, it was required that they have the capacity to collect the taxes agreed upon, together with some other duties which were now authorised in the Agreement – though the Deputations had been collecting them anyway from before the war. Thanks to this confused beginning, the Deputations were able to maintain their special status and also to adjust the new system to the changing circumstances of the State. In fact, In Biscay there was an intense demographic and economic upturn after the Second Carlist War, particularly on the banks of the Nervión.

The incipient process of mining, which started during the pre-war period, expanded exponentially a few years later. The expansion of the mining industry required new public works; i.e., trains and railroads and an enlargement of the harbour. The Deputation subsidized the railroads but, before the war, it had also financed its own railroad system, the Ferrocarril Minero de Triano, which provided service to the most productive mines of the time. This railroad system, the only one of public ownership in Spain at the time, and the income it produced allowed the Deputation not to collect any agreed tax for a period. It should be noted that, from the end of the 19th century to the beginning of the 20th century, the mining extraction industry and the exportation of iron to England, Belgium and Germany were at their peak. In addition, iron was also sold to the local iron industry, and Altos Hornos de Bilbao, La Vizcaya and La Iberia merged in 1901 into Altos Hornos de Bizkaia, S.A.

The subsequent new agreements or “renewals”

The Economic Agreement, which was initially brought in for the short-term, was renewed for the first time in 1886. The changes to the Central Treasury meant amendments had to be made to the Agreement, but the system soon proved to be sufficiently flexible to be able to implement them. Thus, after the 1886 renewal, the agreement was successively renewed in 1894, 1906 and 1926.

The reason for these renewals was down to the obvious advantages of the agreement: the Ministry of the Treasury collected secure and immediate resources without incurring any type of expenses – as long as the Provincial Councils continued with their tax management and paid religiously, as was the case.

On the other hand, the Deputations were still executing a wide range of powers, in most cases under the Economic Agreement, so they could maintain a high level of autonomy. For instance, their public employees were appointed from within, they had the control of the accounts and budgets of the local entities and they didn’t have to provide information on their own accounts and budgets to anybody (not to the Ministry of the Governance, not to the Court of Auditors). In addition, they were in charge of an extensive provincial road network and each territory had their own provincial police force (in Biscay and Alava, the Miñones, and in Gipuzkoa, the Miqueletes), they financed the provincial welfare service, they gave grants for Fine Arts studies, they supported professorships (like the one in Basque language at the Instituto Vizcaino), Farm schools and so on. Summing up, the maintenance of the system was based not only on the mutual interest of both parties but also on the efficiency the Deputations showed in the execution of their powers, supported by the excellent results they obtained. The fact that the new mass political parties of the end of the 19th century and the beginning of the 20th century criticized the management carried out by the dynasties that typically had the control of the Deputations didn’t mean they were against the Economic Agreement system as such. In fact, when these parties –socialist or nationalist– had significant representation in the Deputation of Biscay, they did change some specific aspects concerning management but these changes never brought along a crisis in terms of the scheme that had been agreed on in and of itself.

After the first renewal of the Agreement in 1886, it had to be amended again in 1893 because of a series of reforms implemented by German Gamazo – something which finally led to the negotiation of a new Agreement the following year. From that moment, in 1894, the Ministry of the Treasury declared openly and officially their respect for the “economic and administrative independence” of the Deputations. By the nineties, the system was well rooted. In 1989, due to the war in Cuba and as a response to the demands of the Ministry to raise the quota by using fixed percentages of increase, the Deputations negotiated the payment of a Donation, just for that year, preventing the quota from increasing in the following years. In 1900, as a consequence of the tax reform by Fernandez Villaverde, the Agreement was partially amended in order to add a new tax figure, the Asset Utilities Tax, which was mainly a tax on profits. On this occasion, not only was a new tax added to the already agreed ones but a clause was also established under which the Basque companies set up so far which operated in the rest of the State had to pay taxes only to the Foral Deputations and not to the Ministry.

The more industrial and dynamic the Biscayan economy was, the stronger the relationship it had with the rest of the State. As a consequence, many companies started to have problems with their taxes as the Ministry was willing to tax all their profits generated in common territory – although this was impossible. A new Agreement was reached in 1906, and its validity was for a longer period than the usual one as it was signed for twenty years, with a little increase in 1916, after the first ten years of validity.

During the First World War (1914-1918), Spain was a neutral country and, as such, benefited from a high demand for products that the economies at war couldn’t produce. This was the reason why prices rose so remarkably. At the same time, some sectors of the Biscayan economy (i.e., maritime transport and the iron and steel industry) obtained the highest profits ever seen. Thus, the quota agreed upon in 1906 in a completely different economic situation was no longer in line with the great financial profits which were being reaped.

Although the Triano railway was not so profitable as before and even made losses due to the progressive decline of the mines it had been providing service to, the Deputation of Biscay still had huge amounts of income from the Asset Utilities Taxes. The results were obvious: schools in suburbs were founded, the expenses for roads increased, the duties on basic and essential goods were lowered, new cultural institutions were set up and financed (i.e., the Basque Study Institute/Eusko Ikaskuntza, Euskaltzaindia), and so on. All these factors brought about a situation at the time of signing a new Agreement in 1926 which made it difficult for the Deputations to use the poverty of the territories as an excuse – the traditional justification of the special foral situation in order to pay a proportionally small quota. During those twenty years (1906-1926), population and richness had remarkably increased and, therefore, the Ministry made an attempt to collect in an alternative way, leaving the quota aside, and said alternative way consisted of collecting part of the taxes from the companies which operated in the Common territory, though their official headquarters were established in the Basque territories.

The abrogation

Following the Spanish Civil War, the Economic Agreement was repealed for Biscay and Gipuzkoa, as the winning side considered them to be “traitor provinces”. However, the Agreement continued to be in place in Álava and Navarre throughout Franco’s dictatorship.

During the following ten years after the last renewal, from 1926 to 1936, problems occurred continuously between the Deputations and the Ministry of Finance; problems which became more serious during the Second Republic and when discussions were taken up on the Statute of Autonomy. When the political obstacles were apparently removed, the fiscal ones turned up. In fact, during the summer of 1936, the discussion about the autonomous Treasury and its relation with the Economic Agreement was suspended without a solution. In July, General Franco raised his troops against the Second Republic and a bloody civil war started. The Deputation of Biscay continued its work of tax collection while the new Basque Government, organized in the autumn of 1936, was fully concentrated on the field of economic policy.

Franco’s troops took over Bilbao on the 19th of July 1937. In a few days (the 23rd of the same month), the Decree, which abolished the Economic Agreement with Biscay and Gipuzkoa but not with Alava or with Navarre, was published in the Official Gazette. This abrogation was not only caused by a wish for revenge but also because of the fact that the Agreement was supposedly too advantageous for Basque taxpayers. Moreover, it should be noted that the ones who finally won the war had an enormous necessity for income to finance the war, so they chose the most immediate way: the abolishment of the Economic Agreement and the simple establishment of the Central Treasury in Biscay.

This Decree brought several consequences in addition to the loss of a regional Treasury. It caused a lack of maintenance on most of the provincial roads, because that responsibility was transferred to the corresponding Ministry – something which clearly meant roads were abandoned. It also caused the closing of schools and the disbanding of the provincial police forces, the Miñones and Miqueletes.

Although immediately after the war there were some attempts to restore the Agreement, with these attempts being much stronger in the seventies, none of them succeeded. The institutional prejudice or fear of potentially autonomous Treasuries with solid economic resources in a context of a fully centralised and hierarchical State (as Franco’s dictatorship was) explains to some extend the failure of the different attempts,

A few days before Franco died, the establishment of a special Commission for the study of a particular scheme for Biscay and Gipuzkoa was approved. However, this was not the channel used for the restoration of the Economic Agreement. The political reform process, within the framework of the 1978 Constitution, meant not only the mere abrogation of the 1937 Decree but the establishment of the Basque Country as an Autonomous Community.