Spain Leaps Toward Political Breakdown

Desperately needed international investors dread it

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

The dust is not even close to settling after Catalonia’s latest experimental flirtation with nation building. The pro-independence coalition fell tantalizingly short of gaining a majority of seats (62 out of 135). Now it needs the support of the anti-capitalist separatist party Popular Unity Candidacy (CUP) to secure a pro-independence majority in the regional parliament.

The problem is that CUP, which advocates a Catalonian exit (Cat-exit) from the EU, the Eurozone, and NATO, as well as unilateral default on the region’s debt, seems determined to play hard ball. After picking up 10 seats in the election – a seven-point increase on 2011’s total — its lead candidate Antonio Baños has refused to endorse the reappointment of the region’s pro-business president Artur Mas, who Baños described as “tainted” by corruption and the long shadow of austerity.

Kingmaker or Kingslayer?

In his role as Catalonia’s new kingmaker-turned-kingslayer, Baños also dismissed the possibility of CUP supporting a unilateral declaration of independence from Spain. Before the elections CUP had pledged that it would only support a unilateral declaration of independence if the pro-independence parties received a majority of the vote. It won 47%.

As for Mas, his post-electoral hangover has only just begun. Back in 2012, The Economist’s Giles Tremlett presciently warned that by nailing his colors to Catalonia’s independence movement in a last-ditch effort to salvage his own political career, Mas had jumped on a tiger he could not fully control. Now the tiger, it seems, is in the process of unseating its rider. And the rider could soon find himself barred from public office altogether.

As El País reports, the Catalan premier and two other political officials from his party are an official target in a probe (or in the vernacular of Catalonia’s pro-independence supporters, “political trial”) opened by prosecutors over last year’s symbolic referendum:

The Superior Court of Justice of Catalonia (TSJC) is investigating whether Mas, his former deputy Joana Ortega and education commissioner Irene Rigau committed any crimes by organizing a vote that Madrid considered illegal.

If tried and found guilty of disobedience, Mas could be barred from holding office anywhere between six months and two years. The other crimes also entail a prohibition to hold public positions for up to 10 years.

The day Mas is scheduled to testify in court, October 15, is also the 75th anniversary of the death of Lluis Companys, the last Catalan leader to declare national independence from Spain (in 1934) who had his life snuffed out by one of Franco’s firing squads after being deported from Nazi-occuped France. According to the Court of Justice of Catalonia, the provocative timing was mere coincidence, an explanation that’s unlikely to wash with Catalonia’s more fervent separatists, for whom Companys’ execution remains a deeply emotive event.

The Price of Fragmentation

In sum, the bitter tensions and divisions, both within Catalonia and between Catalonia and Spain, seem set to deepen and widen further, especially with the separatist factions determined to continue with the secession process and Spain’s central government seemingly determined to create judicial martyrs out of Mas and his colleagues. As an editorial in Le Monde puts it, both sides are letting passion rule over reason.

Indeed, the only thing one can be certain about these days is that political uncertainty will continue to reign in Spain. And if there’s one thing financial markets loath, it is political uncertainty.

Catalonia has until the end of October to form a new government. If the pro-independence parties cannot find enough common ground to unite upon, Catalonia will be left with no government at all. Which will mean that new regional elections will have to be held in a region that is already sick to death of elections — and what’s more, just weeks before Spain’s do-or-die general elections.

It is the general elections that strike the most fear and dread into the calculating hearts of international investors. The biggest fear, as articulated by Bank of America-Merrill Lynch, is that after the elections it will be almost impossible for Madrid to form a strong government capable of carrying out “the necessary fiscal adjustments and structural reforms.”

This could be particularly bad news for the Troika, which has built a very effective working relationship with the Rajoy government. Here’s how that relationship works: the Troika says “jump”, and Rajoy says “how high,” while levering his government’s absolute majority in parliament to bulldoze through any new fiscal adjustment or structural reform.

However, the good times are coming to an end. After being implicated in all manner of political scandal [read: Spain’s Descent Into Banana Reublicanism] and having governed with virtual impunity, Rajoy’s People’s Party (PP) appears to be on the verge of an electoral bloodbath. It has already hemorrhaged votes in the European, regional, and municipal elections. In Sunday’s vote the PP mustered only 10 seats in Catalonia’s parliament, compared to 19 seats four years ago.

A New Age of Fragility

As I warned in “It’s Official: Spain is Unravelling,” if Spain’s new political forces (in particular the center-right, PP-lite party Cuitadans, which won an 25% of the votes in Catalonia’s elections) continue to capture the hearts and minds of the disaffected, which now represent a very large minority, if not the majority, of the population, they could hammer a deep nail into the country’s two-party system. While winning the general election is an almost mathematical impossibility, either party could become kingmaker — or like CUP, kingslayer!

The likely outcome is that Spain, which has no tradition of coalitions between parties of relatively similar size, will have to get used to a new age of fragile political alliances — alliances that could prove much harder to sustain. At the very least, it will spell the end of government by decree, which should be welcome news for most of the people of Spain, but perhaps less so for Troika. By Don Quijones, Raging Bull-Shit.

In the words of my mother-in-law, a born and bred Poblana, there is not a single family in Puebla, Mexico, that does not have some level of exposure to the VW plant. Read… Volkswagen Fallout Hits Mexican Economy

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  6 comments for “Spain Leaps Toward Political Breakdown

  1. MC says:

    No need to worry about forming a government: as Italy and to a lesser extent Germany have proven, coalitions between people who until a few months before were hurling insults at each other are not only possible but very stable as well.
    All it takes is a common interest: sustaining the export machine in Germany’s case and keeping the justice-hungry M5S from gaining any minute speck of power in Italy’s.

    Catalonia is, in my opinion, well representitive of why secessionist movements all over Europe are bound to fail until they radically change the tune they dance to.
    I am mostly familiar with the Catalan interior and support for the secessionist cause is mostly genuine there. But Mas’s leadership is highly divisive.
    On one side there are those who see him as a “necessary evil” to obtain independence from Spain.
    On the other are those who see him as too similar to “la jente de Madrid”, the people who ruled over Spain since Franco’s death.
    I tend to side with the latter. Mas bring nothing fresh to the table. “His” Catalonia is not very different from the present one. He has no new ideas, no other plans apart from obtaining independence and hiring tens of thousand new civil servants (a not so veiled attempt to bring unemployed and underemployed people under his banner).

    In this he’s very similar to secessionist leaders all over Europe. They aren’t bold dreamers people can get behind out of sheer enthusiasm or serious thinkers with fresh ideas who can attract intellectuals and enterpreneurs. They mostly promise more or less the same as before, with at most the promise the pork barrel will be kept closer to home instead of being spreadover a wider geographical area.
    Had the French Revolutionaries of 1789 been so tame, the Bourbons would be still in power in Paris and Napoleon Bonaparte would have remained just another career military man.

  2. rich black says:

    Sounds like political turmoil, and yet house prices in Spain have hit their highest level since 2013, and month over month auto sales in August surged 23 percent. It smells a little like Spain’s experiencing some kind of an economic recovery. If so, some may feel that it’s just not the time to change horses.

    • rich black says:

      Check out this 10 year chart of Spain’s retail sales. More markers of an economic recovery:

    • MC says:

      It’s exactly the same “recovery” Italy is experiencing, and smells just as fishy.

      As I said in the past, I had been helping my uncle looking for a retirement home in Spain. Nothing fancy and, if possible, in some backwater so as to have quiet and peace.
      Prices started shooting in the stratosphere, and I am not joking, in late 2013, so much he’s presently mulling if France, where property prices have been far more stable, may not be a better bet.
      The funny/worrying thing is one would expect this increase in prices was brought about by a sudden influx of buyers, domestic or foreign, buying hand over fist. But the buyers just aren’t there. The glut in supply is still massive even in remote locations which have experienced net emigration for decades.
      I heard rumors in Catalonia the price driver was twofold. On one side owners heard US hedge funds in the business of “buy, fix and rent” were looking for cheaper alternatives after most US markets became unprofitable and hiked prices accordingly. On the other banks, which hold large number of houses after the foreclosure slaughter of a few years ago, just hiked prices so as to have more valuable assets on their books.
      Yes, both are nothing more than rumors, but the fact stands the increase in price has been completely unconnected from both supply and demand.

      Cars are what have been effectively driving the much vaunted European “recovery” and they rest on just two shaky pillars: lower lending standards and lower interest rates.
      I receive dozens of spam emails from car manufacturers, despite having bought the last brand new vehicle in 2009, and I’ve made a hobby of taking note of advertised EAPR.
      Early last year EAPR dropped all across the board like the proverbial stone: they averaged 4% after years in the 8-9% region. Earlier this year they spiked again to 6-7% on some models but I noticed a very intriguing trend: SUV models, those giving car manufacturers the highest profits, remained unchanged. Ford was advertising an EAPR of 6.75% on its popular Focus but in case of the Kuga SUV this dropped to a neat 4.05%. Remarkable, isn’t it?
      Now EAPR are back in the 3-4% region, with the occasional 1% “one time promotional offer” popping up.
      Regarding lending standards: Europe has no “subprime” as Americans intend them. But this doesn’t mean other means were employed, like extending loans to temporary and seasonal workers with two months contracts and no meaningful collaterals to their name. It’s also not uncommon for parents to act as “guarantors” for their unemployed/underemployed sons and daughters. To buy a brand new car, of course, not a cheap reliable beater, like an old Honda Civic or Toyota Corolla.

      One local news sites was pretty much delirious of joy a few weeks back when it reported leveraging ratios have started to grow again and “exploded” in the automotive sector. With unemployment in the double digit region and wave a freshly announced layoffs it’s surely cause for celebration.

  3. Nacho Pepe says:

    I haven’t checked the laws myself, but press reports are agreeing that they have two months to find an agreement since they vote for the first time… and they have a few weeks yet until that.
    A repeated elections could take place as far away as March 2016.

  4. randombypasser says:

    In Finland we have a long history of coalition governments which in some cases have had very different agendas at start and in the end they usually have found something in common enough to govern a small country. Those coalition governments have usually at least managed to govern, sometimes even done quite well. But that was back when employee/employer unions had found collaborational harmony for a while, mainly from early 70’s to late 90’s. From thereon it seems like we have had no actual unions on either side which actually can or want to affect strongly on anything.

    In Finland the main difference between strongly divided and more typical one with one or two party leaded government is the heavily more populistic take on situation of the former government type:
    Officials tend to publicly debate on and with the media of the coming government decisions and try to get some publicity from that and sometimes representatives even are plainly doing that just to hear the thoughts of “their people” to fabricate their “own” opinion. That’s just plainly disgusting and shameful, and that could be waiting for Spain.

    Finland has had two way below par governments (yes, coalition) and the current one (yes, coalition) seems ending the same, which means we have and have had, a dysfunctional government for 9 years now and still counting. This country is going straight to hell, in manner of speaking. Maybe not otherwise, but for the reason that the current government is going to cut the funding of public education and publicly financed R&D by huge percentage.

    It seems that the government in Finland thinks that with the forementioned means we maybe can save our fiscal asses now. But i doubt the thought that it comes with the price of to transfer the current bill to the next generation which will inherit even a lousier economy and more debt than any Finnish(ed) generation ever in this country’s short history, including the years after war with now late Soviet Union.

    Now that’s a sound, true&tried coalition politics, so beware and be scared Spain.

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