Hopes that Catalonia’s woes could be contained are fading.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
On Tuesday night, for the briefest of moments, Catalonia’s government severed its ties with Spain. The region’s president, Carles Puigdemont, declared independence from Spain at around 7.40 p.m., Spanish time. Then, roughly ten seconds later, he put it all on hold, to the visible dismay of many of his fellow travelers.
The markets were pleased, interpreting the suspended declaration of independence as a retreat from the brink. The Spanish stock index IBEX 35 surged 1.5% on Wednesday, and is up 3.4% in five trading days, making up a big part of what it had lost over the prior four trading days. It remains 7% below its year-to-date high at the end of April.
For many other aspiring nation states, the key to independence lay in getting enough votes on the UN security council. But if Catalonia’s bid for self-determination ever made it to the UN, it probably wouldn’t garner enough support from the Security Council, for the simple reason that an independent Catalonia could encourage other separatist regions in the EU to launch similar bids.
So why did Puigdemont change the script at the very last minute? According to the Catalan government’s chief spokesperson, Jordi Turull, he did so in response to pressure from key international mediators that are insisting on dialogue between Barcelona and Madrid. “[They] said that if we did this they would be willing to act,” said Turull, who refused to reveal the identity of said mediators.
The problem is that Madrid has shown absolutely no interest in dialogue, for two main reasons:
- Votes — as shown by the recent rise in the opinion polls of Cuitadans, the party with the toughest line on Catalonia, in many parts of Spain these days taking a fiercely adversarial approach on Catalonia is a surefire way of winning votes. By the same logic, offering concessions is a surefire way of losing votes.
- Finance — even if Rajoy wanted, which he certainly doesn’t, Spain today could not afford to offer Catalonia the sort of financial arrangement that the much smaller Basque Country enjoys, which allows it to keep a much larger part of its tax proceeds. Spain’s public debt has mushroomed by almost 200% in the last ten years and for the first time in decades it is using debt to fund its very fast growing pension shortfall. In other words, it’s not in any kind of position to lose a large chunk of its tax revenues.
Rajoy’s initial response to Catalonia’s suspended declaration of independence has been to hint at the implementation of Article 155, which would see Catalonia’s autonomy suspended and allow Madrid’s central government to take control. But before activating the article, he asked Puigdemont to clarify whether or not he actually declared independence last night.
If Puigdemont responds that he didn’t, he risks losing the lion’s share of his political support in Catalonia. If he confirms that he has, he effectively signs his own arrest warrant.
If Madrid then proceeds with Article 155, it’s also likely to activate article 116, which governs the application of states of alarm, states of emergency and states of siege in Spain. As we’ve mentioned before, any attempt by Madrid to dissolve the Catalan parliament and arrest Puigdemont and other key Catalan government figures is likely to trigger a fierce public backlash. As such, Madrid will need all the manpower and firepower at its disposal. But putting the army on the streets of Catalonia could be an even bigger PR disaster than its handling of the Oct 1 referendum. It’s also likely to create even more separatists in Catalonia.
Naturally, none of these actions will help to improve relations between Madrid and Catalonia’s 2.5 million-strong separatist community. The worse relations get, the slimmer the chances of dialogue even beginning between Madrid and Barcelona, let alone bearing fruit.
Catalonia’s economy, whose share of Spanish GDP is roughly equivalent to London’s share of the UK’s, continues to suffer the chronic effects of rampant uncertainty. Over 30 major homegrown and international corporations have moved their headquarters to other parts of Spain, albeit only on paper for now, while the region’s tourist numbers continue to slide as a result of the terrorist attack in August and rising political tensions. Catalonia is Spain’s biggest tourist region and as we pointed out a few months ago, Spain’s unprecedented tourism boom is arguably the biggest driver of its economic recovery.
For some in the Rajoy administration, Catalonia’s largely self-inflicted economic woes may be viewed as an opportunity to further centralize Spain’s economy, but that could be a dangerous miscalculation. After all, this is not a zero-sum game. Barcelona is a global city that has carved a successful niche as a top tourist destination, a leading trade fair hub, and global business center. If international companies or travelers get cold feet, they’re more likely to turn to other European capitals than to other Spanish cities.
Any hopes that Catalonia’s woes could be contained within its territorial borders were recently dashed by Maurice Obstfeld, the IMF’s Chief Economist, who warned that “the situation in Catalonia is worrying, because it creates a lot of uncertainty, both for the Catalan and the Spanish economy.” He also cautioned about the potential “collateral effects” the Catalan crisis could have on other European economies.
As such, the recent market euphoria over Puigdemont’s is probably premature. For the moment there’s very little sign of any solution to the conflict between Madrid and Barcelona that doesn’t involve a massive escalation of tensions. By Don Quijones.
Money is fickle and fearful. Read… Spain Teaches Catalonia a Lesson about the Power of Money
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Well I’m looking forwards to Gibraltar offering Catalonia free trade zone
It appears debt is the tie that binds. We’re one big happy family, right?
This is why governments need debt limits and balanced budget laws. Today, it’s Catalonia. Tomorrow, in every country, it will be the millennials who refuse to repay the debts that other generations have racked up. I won’t argue with them. It’s unfair for one group of persons to rack up unreasonable amounts of debt for other groups, or other generations.
The Millennials should reject their sovereign debt service “obligations” as onerous debt as do I. I am in the “baby boomer” generation and I never approved so much as one red cent of the US public debt and/or its even massively greater unfunded and unrealizable promises.
When we say politicians “kick the can” down the road, that is actually a euphemism for stealing from future generations. I’m in the baby boom generation too, and I’d gladly support the millennials if they seek to repudiate the debt. It’s taxation without representation. These debts are being left to future generations, who are not voters at this time.
Now we have Trump pushing unfunded tax cuts for the wealthy, which would push even more debt on the millennials.
Exactly how would an entire generation ‘repudiate the debt?’
This intergenerational argument fails on a number of levels. Every succeeding generation always inherits the collective public debt of preceding generations. They also inherit the public assets such as infrastructure, institutions, educational opportunities and so forth. There is no free lunch.
As young boomers, we inherited the debts from World War II, Korea, the Cold War and the under-funded social security obligation to our parents and grandparents, two generations whose taxes were far too low for their ultimate lifespans.
Should we have refused to pay these debts?
When social security taxes increased hugely under Reagan in the 1980’s, we boomers stepped up and did not complain about how unfair it was for us to have to pay far more than our share because “our” generation did not incur these debts. We also were attempting to pre-fund our own social security costs, hence the accumulation of the $3 trillion social security trust fund (also paid into by younger subsequent generations).
IF the intergenerational exchange of public assets and public debts can be viewed as out of balance, then perhaps it is always collectively unfair; but this unfairness extends to every generation.
Which generation has and will inherit the most in this type of accounting? It is likely the Millennials, the best educated in history, the beneficiaries of civil, voting, and women’s rights (all fought for for many years by many earlier generations) and the likely inheritors of the wealth of the boomer generation.
None of has a vote over the reckless actions of the deep state or its central banks. In the US, we lost control of money and debt with the creation of the Federal Reserve in 1913. These folks are not accountable to an electorate.
I am hopeful that the Millenials will take us in a better direction once they become the leaders of our country…it cannot come too soon.
Should the Americans have stood up to take the debts incurred defending the colonies in the french-indian war instead of leading to the Boston tea party?
This seems like a better historical parallel, and shows that this intergenerational pattern can and has been broken. Cleaning the slate for the next generation. The us had no British debts to pay back.
The very name boomers shows the demographics there were more workers per retiree so per capita tax was less.
I’d also argue with the assets being passed down statement as vast amounts of infrastructure have been privatised in that era. The social contract is assets and debts if there is no assets it is broken.
So debts have been passed down without the assets. Arguably this is similar to the ww2 debts, however if there had been no war on would the boomers have accepted the same amount as these war debts.That sounds similar to pre-register France and the French never accepted the kings debts with out assets and the king lost his head in the revolution.
It’s just like the Spanish civil war. The liberal system breaks down with everyone saying they don’t want war. Then the war comes.
Some of the EU’s ‘problems’ are unfathomable to me. Britain has thousands of retirees living in Spain and Spain has sent thousands of workers to Britain. That mutually advantageous situation could unravel if Britain ‘falls out’ of the EU.
Catalonia should be a Spanish internal affair but it won’t be because of the… EU.
Why the nations of Europe put up with this additional administrative layer and its dictatorial decrees and rules is beyond me. Wait till Brussels pulls an Article 155 on Rajoy!
Here’s the bit I don’t get about the EU’s stance, which the more politically nuanced among you might be able to help.
The EU is a political architecture that centralised power away from its member nation states. The more power that is centralised, the less important are those positioned below in the hierarchy.
So why do the centralist megalomaniacs in Brussels care if they have 28 or 29 “members”, as long as they are all subservient and pay their dues to their EU masters?
Indeed, the Rule-book of Power encourages fragmentation of opposing forces.
Why does the EU dither, when they should remind Rajoy who really has the money and power?
Maybe, just maybe, they think that Catalonia would possibaly tell the EU to go push a rope??
Or better yet, who guarantees the balance sheet of the ECB?
Well that is an easy one. Germany has a negative balance of nearly 1T Euros on the Target2 books. Thus Germany has the biggest bar bill in the EU. And in all things about Eurobonds, the narrative is that the EU would like nothing else than to sign up German taxdonkeys to guarantee EU sovereign bonds. There appears to be increasing resistance to this idea.
Totally true. But in case of emergency the German highest court has already ruled that the asset purchases of the ECB are against the German mandate to the ECB. When de Euro blows the Germans also have additional exposure as the debts of countries that are unable to pay are guaranteed by the other countries i.e. Germany. So it will be a legal battle then, which according to me the Germans will win and use as an excuse.
You have the bar bill and the concept of target II backwards.
Germany does not owe under Target II the target II imbalance is how much Germany is owed. In older times that is how many DM the other countries would ha e to have brought.
The Target II numbers are also worse than they seem as their is a lot of other Euro sitting, in German bank’s accounts (now classified as “German”) that belongs to Among others, greeks, Italians, and Spaniards (the countries with the most unstable banking systems)..
Independence is not free. Unless the Catalonians are willing to go to war, don’t expect things to happen.
Before going to war, there are other options such as refusing to pay the taxes to central government. That is how the war of independance in the US started with the Boston Tea party. Except during the civil war in Spain, Catalonia does not seem to have a tradition of violence. Of course that could change with the young generations and Catalans being just fed up that civil disobedience does not work.
The extremely civilised and pacific nature of the Catalan Revolt 2017 has been impressive (above all when compared to the dumb Basques -although that was just a minority group of wannabe Che Guevaras).
One cannot tell, however, what might happen if Puigdemont is arrested and Autonomy suspended, as tensions are rising and there is an endless stream of abuse being directed at Catalans in the media and on the street.
I hope tempers hold. The Catalan nationalists are being very moderate in their language, unlike the other side.
There are some sensible people around,one government official in Catalonia even apologised for the referendum violence, only to be rebuked by a minister who then praised the police to the skies. Adding fuel to the flames indeed.
As did the veiled death threat to Puigdemont by the PP spokesman – an incredible moment taking one back to the rhetoric of the 1930’s.
Ada Colau, Mayor of Barcelona, is doing very well, and trying to calm things, arguing for dialogue and a political not a legal settlement.
Don Q is certainly correct in saying that the PP are getting lots of votes over all of this, a key factor in this kind of primitive sectarian politics. They have nothing else to boast about except their ‘patriotism’, so one cannot expect them to moderate their line.
In fact, they are loving it all – smiles all round in Congress.
So Spain’s Prime Minister Mariano Rajoy gave Catalan President Carles Puigdemont a five day ultimatum to clarify whether he actually declared the region’s independence in his speech devoted to the highly controversial referendum, and another 3 to “rectify it.”
Isn’t that something Puigdemont, et al should be able to respond to within 24 hours? Or is this a diabolical new can-kicking exercise from Spain, the master of extend-and-pretend when it comes to “managing” their non-performing loans and insolvent banking system.
The independence declaration was very clear and in writing, one assumes that Rajoy and his cabinet can read.
The problem is clearly that the legal tools available to Madrid might well do as much damage as good if employed (lawyers have been writing about this in the Spanish press) and the popular back-lash in Catalonia would be tremendous and look very bad internationally.
They really have no option but to leave the Autonomous status in place, even if they arrest Puigdemont, and then, well, more elections must be held and more trouble will come.
Puigdemont just posted an image of a chess board on Instagram, and an hour-glass as his response to Rajoy’s deadline.
The PP need him to blink and surrender without having to invoke those emergency articles in the Constitution.
Quite a stand-off.
The PP dont , or more likely, dont want to get it.
They were given a way out and forward with the reserved declaration in Catalonia “open to dialouge”.
Their answer, bombastic, bow to me, time constrained ultimatums.
Effectively, pouring gasoline, on a smoldering fire.
Perhaps6this is an EU diversion to draw attention away from the imploding Brexit Negations.
Madrid is still shaking big sticks and making threats along with issuing time compliant ultimatum’s. Which just like red line speeches, never achieve, what the issuer wants, unless the issuer wants something negative to occur..
Any logical observer would conclude.
Madrid does not want an amicable, or peaceful resolution, to this matter.
Hi DQ,
Do you think Puigdemont will declare independence on Monday?
Also has anybody from the Basque parliament spoken out in support of either party? Its all been very quiet from this side.
Steve,
It’s a tough one to call, since we have no idea what’s being said and done in all the back channels.
As things currently stand and with only a partial view of the chess board and pieces (nice catch, Cynic), I would say that Puigdemont will probably stick to his guns, although I imagine the reiterated declaration will be couched in qualified terms — e.g. “Yes, we declared independence on Tuesday, but we put it on hold in the hope that there may be the possibility of mediated negotiations…” — something Spain and the EU have categorically rejected.
If he doesn’t do that, he’s effectively agreeing to an unconditional surrender to Madrid and he will lose almost all of his credibility and support in Catalonia.
In exchange for what? As they say in Catalonia, res (nada, nothing).
For the moment there are no guarantees whatsoever from the Spanish side. And as Cynic says, more and more people are beginning to question the wisdom of proceeding with Art. 155. If Rajoy activates it, there’s no telling what kind of chaos it could unleash. And we’re not just talking about the pitched street battles that will likely ensue. Those will be just the most visible aspect of it.
Madrid would effectively have to shut down the Catalan government and change the leadership of all the key civil service departments, replacing senior civil servants with its own quislings. Would the new people they put in charge know their way around the system? More importantly, would they command the loyalty and respect of the thousands upon thousands of hardcore independistas that work in Catalonia’s government institutions? It’s unlikely.
Case in point: today is Hispanic Day in Spain, a national public holiday to celebrate all things Spanish, include the “discovery” and conquest of the Americas, but hundreds of councils in Catalonia have gone to work as if it’s a completely normal day.
As for the Basque government, it’s so far been pretty quiet on the issue, aside from refusing to sign off on Madrid’s 2018 budget. It knows that it’s already got the perfect fiscal arrangement with Madrid. Why rock the boat?
The general public in the Basque Country is another matter. It has held a number of fairly large demonstrations to protest the treatment of Catalonia. If Rajoy presses the nuclear button and things get really ugly in Catalonia, could there be civil unrest in the Basque Country? It’s unlikely, but you never know.
Thanks DQ great reply.
Im becoming more anti-establishment as I get older, so part of me hopes Puigdemont sticks to his guns and goes for independence.
Sometimes a system wherever it is needs a shake up, short term pain for long term gain.
Businesses who are moving their headquarters to other area’s of Spain can be replaced.
Regards
Steve
My family are politicians in the Basque Country: the ‘suspended; declaration has really upset and puzzled the pro-independence Left, as their policy is for a unilateral declaration and damn the consequences. Not very subtle.
They just don’t know what to say now – actually quite funny.
On the whole though, the attitude of most Basques is just as you say ‘Why rock the boat?’ Above all, when the water has so many sharks in it….
Including the Guardias and National Police (who beat up voters) for the first time in the Dia de Hispanidad march was a direct insult to Catalonia, and really quite shocking.
There is a horrible resurgence of the Right just now. Doing in the open what they always talk about in private The comments sections in the Spanish press are a cesspit.
I asked a pro-independance Catalan friend of mine this exact same question yesterday. He replied that Puigdemont has no choice but announcing independence (damn if you do damn if you don’t kind of scenario) knowing Spain will be invoking art 155. This will lead to new elections in Catalonia and likely Puigdemont and others imprisonment. The election will return unionist Catalans in power and Rajoy’s supporters will be happy at his show of strength. Too many Catalans are worried about the short term economic consequences of independence tgherefore would rather keep the status quo. He added this will not solve the tense relationship between Catalonia and Spain and calls for independence will go on and on.
It’s the worst of all worlds: deep, permanent, polarization in Catalan society, and no possibility of either really crushing the separatists or of their breaking free from Madrid.
Moderates like the Mayor of Barcelona get condemned by all sides: no one likes fence-sitters.
Interesting that Juncker has now revealed that he told Rajoy to ease off and do a deal with Catalonia before all this came to a dangerous head, and that Rajoy simply ignored him – all driven by internal, vindictive,PP agenda.
A real failure of statesmanship (even though I laugh at using that term of a Spanish politician).
I am just praying there is no shooting, as Spain has seen more than enough of that and the bodies from the last round are still buried throughout the countryside.
“I am just praying there is no shooting, as Spain has seen more than enough of that and the bodies from the last round are still buried throughout the countryside.”
Should read.
I am just praying there is no shooting, as Spain has seen more than enough of that and the bodies from the last round are still buried throughout the countryside in unmarked graves.
Sorry for delay as I missed this interesting response.
We can never balance the books on this intergenerational exchange as I mentioned and the younger will always see the price as too high and the rewards as too small. The books never balance between the generations.
Whether revolution and war occur or economic collapse, you are correct that repudiation of debt and restructuring of the important aspects of society is a common historical result.
For those who lose everything in the fight, is the price worth it? Will the new society in fact be better than the old?
Who was better off in the US after the revolution?…certainly not most landless citizens, natives, women, slaves, poor immigrants or the indentured. The landed gentry, the owners of large numbers of slaves, merchants and owners of capital, those elites who maintained their rank, privileges and wealth were (are) the big winners …it seems always thus.
With upheaval of the old order, assets, whether fully public or partially privatized, do not disappear; what changes is who controls them. This is, at its most fundamental, a struggle for power.
We cannot predict the winds of a history yet to be written…or the consequences of drastic change.
Will Catalonia separate from Spain? Will the EU splinter? Will the US implode in a debt collapse and set off global de-dollarization? Will those seeking drastic change end up as winners or losers?
Or will there truly be a new economic calculus that forces capital ( and finance ) to take into account the negative externalities of its activities? We may predict, but we cannot know for certain…