Investors Fret as Catalonia’s Independence Turmoil Seethes

The closer the referendum, the more draconian Spain’s response. 

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

After years of simmering tensions, the biggest showdown yet between Barcelona and Madrid appears to be just weeks away. On Oct 1, the regional government of Catalonia plans to hold a referendum on national independence, in complete defiance of Spain’s central government in Madrid. As a last show of strength, an estimated one million separatists filled the streets of Barcelona, a city of just one and a half million people, for Catalonia’s national holiday, La Diada, on Monday.

Companies and investors are somewhat less enthused by the prospect of a head-on clash between Madrid and Catalonia, Spain’s richest and fastest-growing regional economy. An increasing number of financial firms, analysts and rating agencies are finally warning that what began as a largely political (and perfectly avoidable) crisis has the potential to spiral into a financial maelstrom that could spread far beyond the borders of both Catalonia and Spain.

Catalonia accounts for almost one-fifth of the nation’s economic output, but for years it’s been locked out from the capital markets and unable to issue its own debt, which is in deep junk territory. As such, it depends on the central government’s national liquidity fund (FLA) for about 60% of its funding, while the central government depends on Catalonia’s tax revenues to keep meeting its financial obligations.

This mutually dependent relationship has been under heavy strain ever since 2010, when Spain’s highly politicized Supreme Court, at the urging of the People’s Party, then in opposition but now in govermnent, decided to annul many of the articles of the new Statute of Autonomy signed in 2006 between Spain’s previous Zapatero government and Catalonia’s regional government, effectively stripping the agreement of any meaning.

The same court, once again at the urging of the PP, now at the head of a minority government in Madrid, just suspended Catalonia’s latest legislative move to allow a referendum on national independence. This time, however, Catalonia’s regional government is refusing to back down despite the ominous threats emanating from Madrid of criminal proceedings. Depending on which side of the fence you’re on, it is either a criminal act of treason or a heroic act of rebellion.




If the Catalan government plows ahead with the referendum, and there’s a sizable turnout, and the majority vote for independence, the financial fallout, both for Catalonia and Spain, could be catastrophic.

Last year credit rating agency Moody’s warned that if Catalonia defaults, given the debts it owes Spain, markets would see it as a Spanish default. According to Dutch bank ING, if Catalonia votes to break away from Spain, it would plunge the region into a long period of uncertainty and could unleash negative effects that “proportionally exceed” those of Brexit.

Uncertainty is already beginning to take its toll according to a recent poll conducted by Metroscopia in which 62% of respondents in Catalonia said they were “worried” about the future of their region, compared to 31% who said they were “excited”.

The boards of Catalonia’s three most important business associations, Barcelona’s Chamber of Commerce, Catalonia’s Employers Association, and Barcelona’s Economic Circle, are also deeply worried. They believe that any action taken by the Catalan government should fall within the confines of the law. But they also lay much of the blame for the current situation on the intransigence of the national government, which has failed “to make a single proposal (to address Catalonia’s concerns) in all these years,” as one of the board’s presidents told the Catalan daily La Vanguardia.

It’s not just Catalonia that will pay the price. In a new report Moody’s warns that Catalan secession would seriously weaken Spain’s overall economic strength. The ratings agency nonetheless expects that Catalonia will continue to form part of Spain in years to come, especially given the number of obstacles blocking its exit.

Those obstacles include the widespread lack of political support for Catalan independence in Brussels and other European capitals (with the possible exception of London), the huge debt load a newly independent Catalonian State would inherent (though, of course, it could choose to default on that debt, albeit with brutal consequences for both Spain and Catalonia’s economies), and the arsenal of repressive measures Madrid is now readying to prevent the referendum from taking place.

The national government has already dispatched over a thousand riot police officers to Barcelona, ostensibly to protect Spanish public buildings. In reality the government doesn’t trust Catalonia’s autonomous police corps, the Mosssos d’Esquadra, to do the right thing on referendum day. It’s also threatened to take criminal action against any civil servants who help to make the referendum possible, including by allowing the use of public buildings as voting colleges. Spanish police have also raided a printer’s suspected of producing voting slips for October’s referendum.

The closer the big day gets, the more draconian the Spanish State’s response is likely to become. Eventually it will be left with one last arrow in its quiver: to trigger article 155 of Spain’s constitution, which would allow it to effectively suspend Catalonia’s regional autonomy. Of course, to do that, it would also have to enforce the decision, which would almost certainly mean sending in Spain’s Civil Guard and perhaps even the army, all in order to prevent a region from voting in a referendum that four out of five local people support, many of whom don’t even want independence.

Such a drastic move will do nothing to restore calm, peace or harmony in a part of Europe that still bears the scars from one of Europe’s bloodiest civil wars. Whether the referendum happens or not, Spain’s richest region is likely to be riven by conflict, division and uncertainty for months, if not years ahead — none of which is good for either Catalonia or Spain’s economy. And the biggest irony of all: the more Madrid tries to pummel Catalonia into compliance, the more separatists it will create. By Don Quijones.

“Significant economic damage” is a “price worth paying” for Brexit, people think. Businesses are not so sure. Read…  Support for Hard Brexit in the UK Hardens




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  26 comments for “Investors Fret as Catalonia’s Independence Turmoil Seethes

  1. Lluis
    Sep 12, 2017 at 9:47 am

    Thanks for this well balanced insightful piece of information.

    Congratulations, this is how a reputation is built.

  2. 173d Viet Vet
    Sep 12, 2017 at 10:23 am

    Catalonia is tap dancing on dynamite……

    IMHO, the results of Catalonia’s push for a referendum on independence will have zero chance of returning a positive result for either side.

    I fear that Spain will destroy their remarkable economic successes of the past few years as hot-heads on all sides push for violent solutions.

  3. Petunia
    Sep 12, 2017 at 12:10 pm

    Catalonia reminds me of the state of Texas, always wanting to secede from the union. Now that a hurricane has wiped out one of their cities, they can’t get enough help from the federal govt.

    • IdahoPotato
      Sep 12, 2017 at 12:42 pm

      Many of their Congresscritters including the Congressman from Dallas, voted against Harvey aid. Their parochialism extends to their districts. If it wasn’t so sad, it would be hilarious.

      • michael
        Sep 12, 2017 at 1:06 pm

        Perhaps it is not so narrow minded not want to rely upon the Federal Government. Why should the federal government bail out states for these type of problems.

        I will use California as a prime example. Oroville Dam almost failed due to lack of maintenance and neglect on the part of the State Government. The Federal Government providing disaster relief only further encourages bad behavior.

        How much of the construction was in known flood planes?

        • IdahoPotato
          Sep 12, 2017 at 1:38 pm

          How is Texas, with no income tax and very few regulations going to pay for it? They attract businesses from other states for these same reasons, but cannot handle toxic spills that endanger millions.

          If people don’t want taxes and regulations and vote accordingly, yes, they need to face the consequences. But when millions of lives and livelihoods are at stake, it’s a difficult question to answer.

        • Dogstar
          Sep 13, 2017 at 9:54 am

          1997 Red River flood in North Dakota resulted in the abandonment of the flood plain. Flood control structures were put into place, anything on the wet side was condemned. That land is now a huge park/greenway. Scale was much smaller obviously, but that should be the goal. Rebuilding without some sort of remediation/limits is foolish. Money could be better spent elsewhere.

      • Joan of Arc
        Sep 12, 2017 at 1:07 pm

        Sure he did as Dallas didn’t get flooded.

    • Frederick
      Sep 12, 2017 at 1:00 pm

      I can fully understand Texans desire to secede to be honest Look at the disfunction in DC and it almost becomes necessary if they want to prosper going forward That said I never appreciated how anti Yankee their attitudes are me being one of course On the flip side I never had anything bad to say about any fellow Americans

    • d
      Sep 13, 2017 at 1:30 am

      Difference between Catalonia and Texas.

      Texas entered the union of its own volition with many of it citicens against the move.

      Catalonia was dragooned it Spain over the Objection of the majority of its population, in an archaic royal marriage that treated Catalonia as a personal chalet of the bride.

      • Klaus
        Sep 13, 2017 at 10:34 am

        Could you be kind enough as to note who was Catalonia’s bride or groom?

        If you are talking about the marriage of the Queen of Castille and the King of Aragon (sic, as he was not a King of Catalonia, for such thing has never existed), that was over 500 years ago and, as far as I know, the currently known as Catalonia was nothing but a part (about a third or a fourth) of Aragon’s possessions.

        On the Catalan’s objection to such marriage, I anxiously await the polls made back then I am sure you can provide ;-)

        • d
          Sep 14, 2017 at 11:07 pm

          “On the Catalan’s objection to such marriage, I anxiously await the polls made back then I am sure you can provide 😉”

          If the Catalans had not been oppose to the union then. (Their opposition to it is well documented throughout History)

          The current secessionist movement, which can trace its roots to those dates, would not exist would it.

          As to your ridiculous request for polls. The peopel had no choice as the were no polls as you are fully aware.

          Madrid can not live at anywhere near its current levels, without Catalonia tax revenues it is that simple. The peopel of Catalonia wright-fully complain the rest of Spain lives on their money.
          They could be appeased and the independence movement silenced, if more of the revenue they generate was returned to their region they they would not have to borrow to fund their region.

      • V
        Sep 14, 2017 at 11:33 am

        ……chalet????

  4. nick kelly
    Sep 12, 2017 at 1:34 pm

    DQ: Does Catalonia have much in the way of semi-autonomy? Here in Canada the mostly French- speaking province of Quebec has a LOT of autonomy, including a number of separate social programs and I believe control over out- of- country immigration.

    As you are probably aware, there is some resentment of Quebec in Western Canada, or more precisely of the federal gov’s treatment of the province, which some see as overly favorable. But that is another matter.

    If Catalonia doesn’t have much autonomy, could some degree of semi-autonomous status defuse the issue?

    Decades ago in University I read Orwell’s ‘Homage to Catalonia’ about the civil war. I can’t remember whether he fought with the International Brigade against Nazi- backed Franco or just wrote about it.

    When my father decided to leave the UK circa 1954, he initially applied to the US but was turned down because he had volunteered to join the
    Brigade which I guess made him look like a commie. So he and I ended up in Canada, which I can live with.

    • Sep 12, 2017 at 9:10 pm

      Hi Nick, DQ is trying to get back to Barcelona from Mexico. He is now stuck at an airport for at least 12 hours – something went wrong…. So he can’t respond.

      However, your question, “Does Catalonia have much in the way of semi-autonomy?” is a good one, and he might write an entire article to address it. So hang tight :-)

      • nick kelly
        Sep 12, 2017 at 11:01 pm

        Thanks WR: Sister, who is a major lover of Japan is just ordering the hard copy of Big Like for us.

    • Hiho
      Sep 13, 2017 at 12:46 am

      Kinda off topic but well:

      Orwell joined the POUM militia, which was a small troskist movement that later on was demonized and crushed by the republican government itself.

      • d
        Sep 13, 2017 at 1:34 am

        Its also where he really polished his propaganda skills.

        Either he was never as left as many say, or that period really opened his eye’s.

        Animal farm proves that.

  5. Gershon
    Sep 12, 2017 at 8:00 pm

    As the globalists and banksters escalate their looting of the 99% worldwide, aided and abetted by Quisling political parties and administrations, formerly sovereign regions and countries are going to see self-determination as the only way to get out from underneath larcenous, rapacious supranational institutions serving the exclusive interests of their oligarch masters. I wish Catalonia and every other region seeking self-determination all the best in charting their own course and destiny.

    • Cynic
      Sep 13, 2017 at 10:00 am

      That is true: unfortunately, the nationalists often come with their own portfolio of dumb ‘radical Left’ ideas and corruption, so many Spaniards (sorry, Catalans and Basques!) will opt for the status quo.

      Better the devil you know…..

  6. Chris R
    Sep 12, 2017 at 10:18 pm

    My wife & I were in Catalonia a couple of years ago; it’s the only part of Spain I’ve been to. There are Catalan flags hanging from almost every window. I made some effort to learn the language before we left; this was greeted with enthusiasm and two shopkeepers actually gave me price breaks on purchases specifically because I spoke to them in Catalan, which for some reason almost no tourists do.

    As you travel around & note the number of areas bombed by Franco & consider the general suppression of the language – which is as old if not older than that of Castille – it becomes evident that economic considerations aren’t much playing into the independence movement’s argument. This is historic & tribal. Catalonia does better than most of Spain economically as well, and the loss to greater Spain would be a severe blow.

    Unless there’s an *extremely* quiet silent majority in the region, the only way I see Spain stopping a Yes vote is by the threat of repression.

  7. d
    Sep 13, 2017 at 1:43 am

    This is ultimately two groups of Spaniards with their pants unzipped, screaming mine is bigger than yours at each other

    Which is what the males there do best.

    Any logical government, would say, fine, have the referendum, we, do not, and, will not, regard it as binding. We will consider the result objectively.

    Then step back and let it happen.

    Unless they get over 66% out vote, its Status-quo going forward.

    The you cant have a referendum, from Madrid, plays directly into the hands of the Out side.

  8. Gershon
    Sep 13, 2017 at 8:20 am

    Judging by the Spanish 10-year bond, investors aren’t fretting that much…yet.

    http://www.marketwatch.com/investing/bond/tmbmkes-10y?countrycode=bx&mod=MW_story_quote

    • Sep 13, 2017 at 8:52 am

      The ECB is buying them.

  9. KONSTANTINOS SPINGOS
    Sep 14, 2017 at 4:30 am

    Like Brexit, like Grexit, like Texas, social and financial misfortune drives more and more people to blame any central government they percept as such. Once upon a time, centralization could offer much more financial benefits (stonger defence, stronger reserve currency) than social (misrepresentation) drawbacks to the peripheries. This effect now vanishes.
    Decentralization as a political reaction to the crisis of the West might prove stronger than nationalism (both are sides of the same coin (populism fueled by corruption and insufficiency of the leadership) yet, in comparison, it seems overlooked. From now on, civil wars get to be much more possible than national wars in the visible future.

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