Jitters Mount Over Prospect of Catalonian Independence

By Don QuijonesRaging Bull-Shit.

President, you are making a grave mistake.

These are the words that Isidro Fainé, the CEO of Catalonia’s megabank La Caixa, is alleged to have said to the region’s president, Artur Mas, during a private face-to-face meeting last year.

Like many of Spain’s business and finance big shots, Fainé is growing a little jittery over the prospect of Catalonian independence; the last thing transnational companies or banks want is for new national borders to be erected that restrict their flow of trade or capital.

An unofficial, symmetric trade boycott has already taken its toll on both the Spanish and Catalonian economies. Not even Spain’s biggest bank, Banco Santander, has escaped the fallout. An associate of mine who works for the bank recently reported losing a high-net worth Catalan client, with over four million euros invested in the bank. The customer had taken offence to Santander President Emilio Botin’s criticism of the Catalonian independence movement.

For Catalan banks such as La Caixa and Banco Sabadell, the stakes are even higher since so much of their business is based in Spain’s north-eastern province. Indeed, as the governor of the Bank of Spain, Luis María Linde, warned late last year, the Catalan independence movement could even pose an existential threat to the region’s banks.

Like all European commercial banks, La Caixa and Banc de Sabadell depend on the European Central Bank (ECB) for liquidity. But the ECB is only sanctioned to provide credit lines to banks of EU Member States, and only accepts assets issued by agents of the eurozone as guarantees for that liquidity. In other words, if Catalonia were ejected from the EU after declaring independence, its banks could well be starved of all liquidity. That’s not to mention the capital flight that would also no doubt ensue.

Hence, Fainé’s frantic lobbying efforts to try to change Mas’ course.

A Broad-Based Movement

What Fainé and many other business leaders fail to realise, however, is that Catalonia’s blossoming independence movement is far more than just a one-man show. Nor can it be stopped by just one man — a fact that Mas himself has repeatedly acknowledged. “A majority of the Catalan people [by recent estimates, as many as 75 percent of the population] want to have the right to decide their collective future,” he said in an interview with BBC Scotland.

Not all those people seek full independence from Spain — just the democratic right to choose or reject it. According to a recent poll by the Catalonian regional governing authorities, 60 percent of Catalans believe that Catalonia should be a new state in Europe. A somewhat narrower majority (52 percent) support the idea of complete independence.

And while Catalonia’s separatist movement may now have a clear top-down structure, it also has a very large grassroots element that serves as its main driving force. Key to this grassroots movement is the Catalan National Assembly (ANC, for its Catalan acronym), which helped to organize the million-man march on Catalonia’s national holiday, the Diada, on September 11, 2012, as well as the human chain that took place a year later.

According to some reports, elements of the organisation are now pushing for a unilateral declaration of independence on April 23, 2015, which in turn has prompted rumours that Spain’s Ministry of Interior might seek to ban the organisation for trying to foment a coup d’état against the central state.

Just as Giles Tremlett warned in a 2012 edition of The Economist, by building up Catalonian nationalist aspirations, Mas has jumped on a tiger he cannot fully control. If he fails in his role or is rejected by voters, he will be quickly replaced by someone else – and probably someone more dogmatic and unpredictable, like the firebrand left-wing separatist Oriol Junqueras who late last year threw down the gauntlet to European bond holders with the threat of a one-week general strike in Catalonia.

“European institutions need to decide what should prevail: democratic principles or the de-facto actions of the (Spanish) state,” he said in a conference in Brussels. “If it is the latter, clearly we will deploy all instruments available to us.”

In the face of such threats, the natural temptation for Madrid and Brussels might be to browbeat the Catalans into submission. After all, a referendum on Catalonian independence is as unthinkable to the EU as it is to Madrid, bringing back bitter memories of Ireland, France and the Netherlands’ rejection of the EU treaty, not to mention Greek Prime Minister George Papandreou’s threat to put the second bailout to popular referendum, which was followed by his immediate Troika-engineered replacement with ex-Goldmanite Lukas Papademos.

The last thing the Eurocrats want is for people around Europe to get all uppity, thinking that they, too, have the right to decide their own collective destinies. However, deploying the old stick-without-a-carrot method of persuasion will, I believe, backfire on both Brussels and Madrid. Short of visiting an all-out economic siege upon the Catalonian region, with all the unforeseeable costs and risks that this could trigger, Madrid and Brussels’ only hope of nipping the movement in the bud before it gains unstoppable momentum is through pro-active negotiation – and with plenty of carrots on the table.

Impossible Demands

The problem is that most Catalans will not be satisfied unless they are given iron-clad guarantees that their culture, language and history will be respected and protected by Spain’s central government. They also seek greater economic freedom, including the right to raise their own taxes as well as control their own spending, just as the Basque Country has being doing for decades.

Neither of these demands, in particular the latter, are palatable to Madrid, for two reasons. First, Spain’s current government is ideologically opposed to granting any more freedom to Catalonia than it currently enjoys. Indeed, quite the contrary. In its drive to further centralise and consolidate power in Madrid, it is going in the exact opposite direction, to the increasing fury of not only Catalans but regional politicians throughout the country.

Second, giving in to Catalonian demands would be tantamount to electoral suicide for Rajoy’s Popular Party (PP). You see, the political landscape is shifting in Spain, and for the first time in its history the PP no longer enjoys a virtual monopoly over the right half of Spain’s political spectrum. Two fledgling parties, the center-right Union, Progress and Democracy party (UPD) and the more extreme VOX party, now pose a very real danger to the PP’s electoral prospects, threatening to steal away many of its traditional voters in the upcoming European elections.

VOX’s founder, Santiago Abascal Conde, a popular political figure on the right and former PP militant, recently accused Rajoy of “betraying” the PP’s values. In the face of direct pressure on its own political terrain, the country’s prime minister and his motley crew of incompetent, money-grubbing reactionaries have little choice but to play to the basest instincts of their party’s core voters – voters for whom Spanish unity is a life-or-death issue and who would oppose any attempt to placate Catalan nationalism.

A Fiscal Nightmare

Then there’s the economic dimension. Should Rajoy give in to Catalonia’s demands for greater economic freedom, Spain would suddenly find itself with a lot less money in the kitty. With Catalonia accounting for one-fifth of Spain’s economy and a vital source of tax revenues, Spain depends for its very fiscal survival on the constant flow of funds from its increasingly bolshie north-eastern region.

Unless Brussels is willing to step in to make up the difference – a very big “if” considering the sorry state of its own finances – Spain’s fiscal situation could well become untenable, especially in light of the fact that the country’s public debt has more than doubled since the burst of its real estate bubble five short years ago. Should the growing tensions between Madrid and Barcelona begin to infect investors’ perceptions of Spain’s sovereign risk, events could very quickly spiral out of control.

And with all talk of negotiations continuing to be dismissed out of hand by Madrid’s central government (for the reasons outlined above), opinions seem set to grow even more polarised. Now, every time Rajoy or one of his government ministers publicly addresses the Catalonian question, tens, if not hundreds, of new Catalan separatists are born.

If, as is expected, the upcoming European elections in May deliver a resounding majority for pro-independence parties in Catalonia as well as a broad rejection of the PP’s electoral programme, the war of words and gestures between Barcelona and Madrid could escalate beyond Brussels’ control. By Don Quijones, Raging Bull-Shit.

“We have to fight corruption in order to build a new model of more sustainable and fairer growth,” said the CEO of BBVA, a Spanish bank known for its deep entanglements in all sorts of sordid scandals. Read….Banker Hypocrisy: Launching A Moral Crusade Against Political Corruption

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