The Mother of All Storms Builds Over Catalonia’s Independence

Ugly repercussions far beyond Spanish borders

By Don Quijones, Spain & Mexico, editor at WOLF STREET:

For the last six months, tensions between Madrid and Barcelona seemed to have subsided, as most of the attention of Spanish government, the media, and the public was diverted by the seemingly unstoppable rise of Pablo Iglesias’ anti-austerity party Podemos — a rise that has suddenly stopped.

Now it seems that what first appeared as reduced tensions between Madrid and Spain’s north-eastern province was merely the calm before the mother of all storms.

Last Friday the coalition of pro-independence parties in Catalonia announced a single list of candidates for regional elections scheduled for Sept. 27. They include the two main parties’ leaders, Artur Mas (Catalonia’s current premier) and Oriol Junqueras, as well as the leaders of the two grassroots movements Ómnium Cultural and the Catalan National Assembly. Also included on the list as a symbolic candidate is Pep Guardiola, the popular former coach of Barcelona Football Club and fervent Catalan separatist.

If the pro-independence coalition wins a majority of seats in September’s elections, it has pledged that it will unilaterally declare national independence within six months. Adding fuel to the fire is a new report just out from the Brussels-based Centre for European Policy Studies that concludes that not only would the Catalan economy benefit from untethering itself from Spain, but the region would make a perfectly viable nation state – at least at an economic level.

At the political and social level, the obstacles are much greater – some might say insurmountable. If solutions aren’t found to these problems soon, Madrid’s spat with Catalonia could soon have ugly repercussions both within and far beyond Spanish borders. Some are even predicting that it could result in Catalonia’s expulsion or exit – AKA Catexit (no, seriously) — from the EU.

Here are six reasons why Brussels should be deeply concerned by what’s going on south of the Pyrenees.

1. Madrid’s Bloody Minded Belligerence. Rather then addressing the crisis in a proactive manner (i.e. by negotiating with the Catalan government on roughly equal terms), all Prime Minister Mariano Rajoy and his coterie of ministers and advisors have done is to shoot off one threat after another about the dire consequences Catalonia would face if it were to call a referendum.

There’s a simple reason for this: by adopting a belligerent line against Catalonia, Rajoy keeps his party’s core constituency of fervent Spanish nationalists happy. And let’s face it, regional tensions are a small price to pay to keep your loyal voters on board.

2. A Broken Nation. As the political divisions between Spain and Catalonia, and within Catalonia itself, continue to deepen, so too do the social and psychological divisions. Boycotts abound of Catalan products (in particular its sparkling wine, Cava). Meanwhile, a bunker mentality is setting in among many Catalan communities, primarily as a result of the increasing hostility they feel emanating from Madrid and Spain’s other provinces.

If these psychological and social barriers are allowed to spread and fester, things could reach the stage where rebuilding bridges within and between communities will be an almost impossible task. After all, it was only two generations ago that Spain was ripped asunder by one of Europe’s bloodiest civil wars — a war that has left deep scars in the collective psyche [here’s an article I wrote in Sep 2013 on this: Fear, Loathing and Collective Amnesia in Crisis-Ridden Spain].

3. Tit for Tat. Madrid’s latest move was to pass a new national security law that would effectively allow it to take full control of a regional government’s competencies if the central government felt that the administration in question had stepped out of line, either by flouting its responsibilities or breaking the laws of the land (for example, by organizing a referendum on national independence).

If Madrid were to seize control of all Catalan government and public institutions (including the police), it would be a hugely provocative maneuver. Subsequent events could very quickly spiral out of control.

4. The Economic Threat. Tit-for-tat boycotts of Spanish and Catalan products are on the rise. The Rajoy government also just passed a law that would effectively allow five of the six Catalan companies listed on the Madrid stock exchange to move headquarters to other parts of Spain without having to consult its shareholders. Madrid could also halt the flow of public funds to Barcelona.

That’s not to say that Madrid holds all the cards. Catalonia accounts for roughly one-fifth of Spanish GDP and a large part of its total debt. If push came to shove, it could take the nuclear option: declare independence and renounce its part of Spain’s €1-trillion public debt. If that were to happen, it wouldn’t take long for investors to realize that the new, much leaner Spain, with a 20% smaller economy, might have difficulty paying back its debt.

5. Catalan Geopolitics. Catalonia is important not just for its relative economic strength; it also has vital geopolitical importance. It is the number-one gateway between Spain and France, accounting for almost all freight traffic between Spain and the rest of Europe. In Barcelona it boasts Europe’s 13th busiest container port.

There are also plans to build a strategic gas pipeline through the Catalan Pyrenees, linking the Iberian Peninsula with French and Central European networks. The MidCat pipeline should be operational by 2020 and is expected to reduce Europe’s dependency on Russian gas by 40%, diversifying the EU’s sources of supply. If Catalonia, once cut off from the rest of Europe, was plunged into sectarian chaos, it would threaten these essential links – a fact that was not lost on Oriol Junqeuras, the firebrand leader of Esquerra Republicana Catalana (ERC), the second largest party in Catalonia’s government coalition.

In 2013, during a visit to Brussels, Junqueras warned that if Spain wasn’t pressured by its creditors to give a little leeway in the non-existent negotiations, the government would call a one-week general strike. “If we did this, can you imagine what kind of impact it would have on Spanish GDP?” he asked. “Or what foreign creditors would suddenly think of Spanish debt and what that would mean for the risk premium of Spanish bonds?”

6. Catexit? If Catalonia does the unthinkable and unilaterally declares independence from Spain, Europe will be plunged once again into unchartered waters. Would the region be ejected from the EU? Would its banks be left out on a limb by the European Central Bank, as the chief of the Bank of Spain, recently warned? Would Spain have a permanent veto over its membership of the EU? These are all questions to which there are no clear answers. What is clear, though, is that if the tensions between Madrid and Barcelona are not dampened soon, they have the very real potential to reverberate far beyond Spanish borders. By Don Quijones, Raging Bull-Shit.

Greece’s capitulation trigged a collective sigh of relief around European capitals, particularly in Madrid where the scandal-tarnished Rajoy government had the most to lose from a Syriza triumph, with general elections lurking just around the corner. Because Spain has “many little Greeces.” Read… Spain Is Not Greece, It’s Spain (And That’s Worrying Enough)

Share on FacebookTweet about this on TwitterShare on LinkedInShare on RedditPrint this pageEmail this to someone

  12 comments for “The Mother of All Storms Builds Over Catalonia’s Independence

  1. LG
    Jul 23, 2015 at 10:44 pm

    Costa Brava, Barcelona, love them! I hope they come to good terms what ever it may be.
    I’m planing to retire there.

  2. Jul 24, 2015 at 2:34 am

    The other apparent alternative for Catalonia is the Podemos supported ‘Yes We Can’ coalition. They want Catalonia to stay in Spain, as a strong left-wing region. It’s funny that Rajoy in Madrid is going to have to be hoping that they can pull if off…

    • Joshua
      Jul 25, 2015 at 2:32 pm

      So Catalonia has essentially become Spain’s Scotland? Scottish voters had been propping up Labour in the UK for years, before the pro-independence SNP began peeling those votes away, and ultimately gave the Tories an outright electoral victory earlier this year that they could otherwise have only dreamt of.

      On the other hand, if that’s the case, in the long run Rajoy and his ilk may be better off letting Catalonia walk.

  3. jan frank
    Jul 24, 2015 at 2:52 am

    We have lived and worked in Spain these last 35 years; we deal a lot with local politicians. One of the things we have learned is that Spanish politicians – at all levels – have a large mouth but NO ears. They simply will not listen, but continue to tell you what they want even when you try to explain to them that they simply can’t get what they want. The second thing we learned was that no Spanish politician will ever compromise – either you do what he tells you to do, or out you go. The third thing we learned is that if a Spanish politician or businessman has to choose between power and money, he nearly always chooses power, even if it loses him money in the short run. He knows that in the long run, power will always get you more money, whereas more money doesn’t necessarily buy power.

    • Falconflight
      Jul 24, 2015 at 4:25 pm

      That sounds so Amerikan.

  4. Michael Gorback
    Jul 24, 2015 at 9:40 am

    It’s becoming increasingly obvious that balkanization is not limited to the Balkans. Instead of coming together, groups seem to be polarizing around the globe. It seems we’ve hit a perfect storm of economic distress and population dislocations.

    • Collenut
      Jul 26, 2015 at 4:39 am

      You are so right and Balkanization is so terrible. That’s why every day Slovenes awaken and say, “Gee, I sure wish we were part of Yugoslavia again.” And the citizens of the Baltic republics awaken and do the same thing. In the 20th century, Europe welcomed 18 new nations. NONE has returned to their former “mother ship.”

      The charge of “Balkanization” ultimately depends on national viability. National viability partially depends on identity. As seen in the case of Slovakia, a people with a distinct identity will accept economic deprivation to affirm who they are.

      Spain doesn’t love Catalunya, doesn’t celebrate Catalunya and it doesn’t trust the Catalans as fully Spanish b/c they aren’t. And Catalans don’t see themselves as Spanish. If you listen to Spanish and Catalans talk about each other in both Spanish and Catalan (as I do) they refer to each other in 3rd person plural (e.g. “they”). They are two identities. Shake them together as much as you want – they will ultimately separate because they are distinct. Let the most powerful pull out the pistol and impose (as Spain has repeatedly done in its history w/ Catalunya and seems to be prepared to do again) and Catalonia bides its time till again it can affirm, “First and foremost, we are Catalans.”

      Europe (primarily the EU) can play the role of recognizing that it has interests beyond affirming what its member states demand. It can serve as the broker to help negotiate an arrangement that works in benefit of itself and all its component parts; nation-states and other equally viable and important elements.

  5. Kenneth Alonso
    Jul 24, 2015 at 12:18 pm

    (1) The problem in Spain is corruption. Who benefits by the corruption in Catalonia is the gist of the argument between Catalonia and the rest of Spain. There is no question of solidarity here. (2) A Greek style solution for Catalonia imposed by those for whom Brussels operates in the likely outcome for Mas and Junqueras particularly if there is any attempt to repudiate the debt Catalonia has amassed at the expense of the rest of Spain. Accessing bond markets will be difficult will that action. (3) Sparkling wine aside, what will happen to a pillar of Catlonian finance, Banco Sabadell, if independence were declared unilaterally?

    • Jul 26, 2015 at 11:39 am

      The Catalan have been pushing for negotiations for decades. Spain’s position has been to mock and condemn them citing “you should feel honored to be part of Spain”. This general attitude is precisely what has unified the region in defiance. It is so strange, all they had to do is treat Catalonia as a peer or at least show some sign of benevolence and/or respect. The Brits could argue some sort of love for Scotland, not so in this case.

      As far as the pillar of Catalan finance? They hold the majority of international business as is. They are the portal through which the majority of all European trade goes through (BCN). You have it backwards. Spain has accrued an incredible debt for which they expect Catalonia to pay the lion share. The Catalan have been paying taxes as high as the swiss do but receive a level of public services akin to Senegal. They are paying for the majority of Spain’s debt which they would be largely free of if independent. The Catalan have been methodically making allies in business across the globe. Apple and Microsoft and other tech leaders are all in talks to have European hubs in BCN.

      I worry most about Spain’s ability to survive without Catalonia, not the other way around.

    • Raimon Lloch
      Jul 27, 2015 at 6:44 pm

      Kenneth, do you really believe the hundreds of thousands of Catalan people that demonstrated the last three years asking for independence did it to decide who benefits by corruption in Catalonia? What a weird idea.

      Regarding the debt, you forget that we are talking about Spanish debt, issued by the Spanish government, and it’s the responsibility of the Spanish state to pay it. Catalan debt is much smaller (about 30% of its GDP) and Catalan politicians fully intend to repay it. This would make accessing bond markets easier, not more difficult.

      What Catalans will not do is to pay any part of the Spanish debt unless the Spanish government recognizes the new Catalan state and negotiates a fair split of assets and debt. This is what would cause the situation described in the article: a Spain with a reduced GDP and its full debt, which would amount to over 110% of its GDP. This is the kind of situation that causes difficulties to access bond markets. And this is the kind of situation that EU would like to avoid.

  6. Jul 27, 2015 at 7:05 am

    There will only be ugly repercussions if Spain refuses to negotiate. Most Catalans wish to remain in the EU where they have been a net contributor since joining. They have no intention of repudiating their debt and indeed the President has already offered to continue to pay extra “solidarity” to Spain until Spain gets on its feet. It’s a simple question of democracy and divergent interests. The Catalans have a right to vote on their political future, and to move forward with it once they decide what it is.

    More info at http://www.cataloniapress.com/free

  7. Martin Pettersson
    Jul 28, 2015 at 2:52 pm

    There’s no EU treaty or law that contemplates the ejection of a member state or territory of the community. So whether Catalonia stays in the EU or not is not a juridical matter but political. And while the massive Spanish debt is on the negotiation table, EU will have to set up some type of relationship with Catalonia that ensures stability for everybody.

    About the Catalan banks, any bank -either it’s located in Europe or elsewhere- with a subsidiary in any EU member state has access to European Central Bank funds, New Yorker Citibank is a clear example.

Comments are closed.