Emotions are running high on both sides of the divide.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
Today was one of the strangest days of my life. I woke up in a constitutional monarchy called Spain and will go to bed, the same bed, in a newly proclaimed republic. Catalonia’s impossible dream has finally come true, but it could be extremely short lived, and it could have very damaging long lasting consequences.
Spain’s Senate responded to the Catalan parliament’s declaration of independence this afternoon by ratifying the activation of Article 155 of Spain’s Constitution, the nuclear button everyone has been waiting for. This will allow the central government to take full rein of the region’s institutions and levers of power, including parliament, the police force, the exchequer (already done), public media, the Internet, the education system, and telecommunications — at least in theory.
There is no telling just yet how Mariano Rajoy’s government intends to stamp its authority on 2.5 million of the Catalans now in open rebellion, or for how long. Given the law’s ambiguity, there are few constraints on its application, but trying to subdue a region where most of the 7.5 million-strong population are hostile to the basic notion of direct rule from Madrid is going to be a tall order, especially if the EU, which refuses to recognize Catalonia, expects Rajoy’s government to bring Catalonia back into line through “the force of argument rather than the argument of force.”
The force of argument is not exactly Rajoy’s forte. In all likelihood, his government’s first act will be to try to arrest the Catalan president, Carles Puigdemont, suspend his ministers, and assume direct authority over the regional government. To do that, it will probably have to take full control of Catalonia’s regional police force, the Mossos d’Esquadra. But what if some officers resist? What if there are clashes between Mossos and members of Spain’s National Police Force or Civil Guard?
Right now, Catalonia and Spain are in very dangerous uncharted territory. Emotions are running high on both sides of the divide. There have already been calls for a general strike on Monday that could last for over a week. The goal is clear: to inflict as much harm as possible on the Spanish economy so that investors begin to question the wisdom of being exposed to Spanish assets. It’s a tactic Catalonia’s Vice President Oriol Junqueras warned of using during a speech in Brussels way back in 2013:
Given that Catalonia represents a quarter of all Spain’s fiscal revenues and that we have the means to mobilize two million people onto the streets of Catalonia, does anyone seriously believe that we are not capable of halting the Catalan economy for one week? If we did this, can you imagine what kind of impact it would have on Spanish GDP? Or what foreign creditors would suddenly think of Spanish debt and what that would mean for the risk premium of Spanish bonds?
Four years on, and this doomsday scenario has become a very real possibility. But how will today’s markets react?
If today’s response is any indication, perhaps less severely than may be expected. Spain’s benchmark index, the IBEX 35, ended Friday’s trading 1.5% lower, making it the only Western stock market to finish the day in the red. Catalonia’s second biggest bank, Banco Sabadell, which is hurriedly packing its bags for more stable pastures (Alicante and Madrid), shed 4.85% of its market cap while the region’s biggest bank, Caixabank, ended the day 2.75% lower.
So far the real blood in Spain’s economic tug of war with Catalonia is not on the bourse; it’s on the ground. Since the constitutional conflict began four weeks ago, a staggering 1,700 companies, representing an estimated 30% of Catalonia’s entire GDP, have changed their registered address from Catalonia to some other part of Spain. Some have even changed their fiscal address.
As WOLF STREET reported a couple of weeks ago, the move is only on paper — something that is not being reported as clearly as it should be in much of the Spanish and foreign press. For the moment most of the companies are not moving their operations, head office, or for that matter any of their workers. All they have done is change their legal address, and what’s more with minimal fiscal fanfare — in most of Spain (with the exception of the Basque Country and Navarre), all corporate tax is paid into the central coffers.
In the meantime, the growing boycott of Catalan goods in other parts of Spain continues to bite. So serious has it become that in a televised interview earlier this week, the former Spanish minister Josep Borell urged Spanish consumers to stop the boycott straight away because it is “destroying the economic ties” between Spain and Catalonia:
I keep receiving messages from small business owners in Catalonia whose livelihood is on the line and they say to me, ‘please stop this, it’s going to ruin us’… There’s going to be an economic fracturing of Spain if we’re not careful.
The fracturing is not just economic though. It’s political, geographic, and social. Communities and families throughout Catalonia are being torn asunder by a conflict that was wholly avoidable, had Madrid shown the slightest interest in reaching a negotiated political settlement.
This comes just when the ECB has announced that it will be paring back its bond purchases. QE pushed down the once sky-high costs of borrowing for the Spanish government, banks, and industry and has kept the economy afloat in the last five years. But if an amicable solution between Catalonia and Spain is not found — and by now, it’s hard to imagine how it can be — Spain’s fragile economic recovery could soon be at risk, and at the worst possible moment. By Don Quijones.
Independence would be “horrific” and amount to “financial suicide,” said Spain’s Economy Minister. But financial suicide for whom? Read… Catalonia’s Political Crisis Snowballs into an Economic Crisis
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As I mentioned before, its hard enough for an outside agency to take over local government functions even if the local officials are cooperating. Think of FEMA in Puerto Rico or New Orleans.
Its not as if Rajoy has battalions of civil servants, police and other officials at the ready to head to Barcelona and start running things.
Since when has logic and common sense ever gotten in the way of a good totalitarian delusion ?
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Communities and families will be torn apart,on that you are correct,it will be bitter and nasty and I wouldn’t be surprised if blood is spilled because a group of nasty corrupt politicians on both sides want to cover up their criminal corrupt crony thieving activities .
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Don – Correct me if I’m wrong but in my opinion Rajoy’s acting and sounding more like Franco by the minute . So is this becoming an attempt by the present government to reinstate Franco’s fascism of old using Catalonia’s attempt at independence as an excuse … or is it simply just another case of incompetence and an inability to govern wisely , adapt and compromise ?
FYI ; I’ve got friends in Galicia hence my interest and concern
Rajoy is a papier-maché Generalissimo Franco, like all modern Western politicians who posture as tough leaders but turn out to be complete embarrassments. They are closer in kind to schoolyard bullies than to a Suharto, a Salazar or even a Cao Ky: the bully is only tough and strong as long as his victims do not offer resistance and teachers give him a free pass.
Rajoy is in power through several of those “deals with the Devil” Churchill would have found so familiar: the raise of Podemos and especially the steady drop in voter turnout have eroded the PP powerbase and without old fashioned clients the party would have been delivered to the dustbin of history already.
Rajoy needs to posture like a mini-Franco to recover some of the old PP voters and to impress his masters in Brussels, who are well known to love democracy only when people vote “the right way”.
But I honestly doubt even he will be so stupid to act like a heavy-handed fool: jailing, beating up and shooting non-violent protesters is what destroyed any remaining shred of legitimacy for the British in India. Rajoy hasn’t got a whole lot of legitimacy left, except perhaps among hardcore Franco nostalgics. He should be really careful and thread lightly.
Wolf Street Corp is incorporated in California.
Try to managed a referendum to proclaim independence from USA and tell me if you find “slightest interest in reaching a negotiated political settlement.” from Washington.
In California, we have referendums all the time. We call them “propositions.” There were two or three dozen on the last ballot (state and San Francisco) — many of them pretty crazy, and some even passed.
Someday “independence” might make its way on the ballot. For now, most people here think it’s just an amusing thought over a craft brew. If it gets even close to making it on the ballot, it will be debated endlessly in California. And if it gets big enough, it will be debated endlessly in the rest of the country. There will be no effort to suppress the debate.
Everyone will weigh in. I doubt it will ever get anywhere near this stage. I’ve lived in a number of places where “secession” was at one point or another a topic of conversation, including in Texas (from the US) and Tulsa (from Oklahoma). None of them were taken seriously by the majority.
But you cannot compare the US to Spain for many reasons, including that US states already have a lot of autonomy, guaranteed by the Constitution (though whittled away by Congress). Spain is a lot more centralized than the US. If Catalonia (and perhaps all regions) had gotten more autonomy from the central government, it would have likely worked as a “negotiated political settlement.”
This mess used by rajoy and co to deflect from their corruption issues
Stems from the watering down (Indian Giving) of a former ““negotiated political settlement.””
Whats the point of entering into another ““negotiated political settlement.”” with an “Indian giver” administration.
Should this mess run for much longer another Spanish bank must fall could that be the domino that creates the domino effect in Spanish banking.
That possibility and blood-shed are what I see as the Two biggest potential real issues inn this wholly unnecessary mess.
When ever an Oppressor/Aggressor moves into a region, support always grows for its opponents. That is Basic human nature and tribalism at work. Catalonia’s are most definitely a close union of tribes.
Much like the Sioux Cheyenne union’s. One of the few native unions, the US never completely pacified.
That was ETA’s strategy: invite state repression, in order to create a rising spiral of indignation leading to a national revolt.
It failed because they were criminal and stupid – kidnapping and murdering businessmen was not a good move, nor killing babies and mothers.
It will be fascinating to see how Ghandi-like passive resistance fares in Catalonia.
According to Spanish Constitution of 1978 there are exclusive competences of central government (Defense,Inmigration ,Justice Department…)and the rest, wich could be transferred.After 40 years of “negotiated political settlement” there are little ones and nationalist regional parties have no space but proclaim “independence” on his own will, and support of maybe half of catalans.
Please do not compare Rajoy with Franco.
As you said Spain can not compare with USA but let me think we are not a Banana Republic either.
Let’s talk about money Wolf:
Have you ever wonder why spanish socialist party especially its leader in Andalucia, support Rajoy position about “independence” of Cataluna?Are they a bunch of totalitarian stupid fascist too?
PPSOE.
I grew up in Southern California, now live in Los Angeles. The state is really more of a “salad bowl” of very distinct sub-cultures than a “melting pot” of similarly-minded Californians.
I’ve always heard about movements and propositions to divide California into multiple US states, but there’s really no interest in breaking from the United States.
The only times I’ve heard anyone here even talk about splitting California from the US were not at all serious, merely people complaining about the election of Trump.
What if it works after all, and Catalonians are free?
Remember, Loyalists to the English Crown were fearful of the consequences of the American revolution.
Canada has the association named “United Empire Loyalists”
The original members were Loyalists who had fled the
13 Colonies during and after the war for independance.
For the most part, they were not suffering from some
“Baseless Paranoia”.
RR.
I wish Cataluya well. I really do. I hope that Catalunya retains her independence.
So do I. I find it rather humorous when folks act as if Rajoy just needs to reinstate law and order. I guess some folks feel that Catalans just need to be rough up enough to appreciate Madrid. It’s total madness. Rajoy’s behavior should not be condoned in any manner.
I’m wondering at the breadth and depth of pro-independence sentiment in Catalonia. It’s one thing to hang a flag from your balcony and attend a pro-independence demonstration, it’s quite another to face the prospect of a violent crackdown. Is the “silent majority” in favor of independence, or merely a better deal within the existing federation? The very worst outcome, it seems to me, would be coercive force met with widespread violence or the emergence of a violent separatist movement.
The electorate in Catalonia is basically split right down the middle: the separatists are ardent and true believers though, not lukewarm – it’s an article of faith and won’t be given up lightly,practically the first word they teach babies is ‘Independence!’ No exaggeration – same with the Basques.
Madrid has in advance threatened any state functionaries and police in Catalonia not co-operating with the immediate sack.
Clearly the separatists are planning massive passive resistance, we shall see how that works when people are faced with not being able to feed their families – the unemployment level is pretty high, and probably they would also be banned from government employment in the future.
However, there are clearly limits to the efficacy of sacking and imprisoning people if the resistance is universal.
Even passive non-co-operation would be a crime of sedition/rebellion as far as I can see, but one can’t send whole government departments to jail.
the ‘electorate’ of Catalonia is not 100% Catalan. Should “non-Catalans” be allowed to vote for independence?
Isn’t Catalonia the wealthiest region of Spain ? Wouldn’t this have a negative impact
on Spanish bonds since the ability to repay those bonds in euros is a little more difficult
versus being able to print lira ?
Lira was the currency of Italy not Spain.
Recently we used to print Pesetas and far away in time, reales and pesos de a ocho.
People loved then around the globe!!
I find it quite humorous that Don references the bond market as a parameter. The CB’s have completely short circuited the market under the misguided hope the EU economies would eventual stabilize. The whole exercise is futile. The global economy is toast.
We are going to need to completely reconstruct our system. It’s not going to be easy or pretty.
Isn’t it about time that Rajoy proclaims himself “Caudillo”? And invites NATO to practice their bombing skills on Barcelona? Hopefully the regime won’t shoot protestants this time.
Actually, the NATO bombing range is in the Basque Country, in a nature reserve, Las Bardenas!
Good point, I thought he might declare himself master puppet of the global banker cartel.
There is another element to this and that’s the fact that if government forces go in and blood is shed by whatever means, the backlash from EU member states towards the EU itself will be enormous due to the fact they did nothing. The EU itself should have been the mediator.
It could be the domino effect the EU has been dreading.
My PM (Teresa May) has let down the UK by siding with Rajoy, what she should have said is that both sides need to sit down and negotiate.
I agree. Unfortunately Teresa May is weak leader.
If May was a strategic thinker, she would have immediately recognized Catalan. It is in her interest to cause utter havoc within EU.
May, like all Establishment “leaders” in the UK and EU, is a puppet of the oligarchy. A supra-national EU makes it easier to turn former sovereign states and peoples into Goldman Sachs looting colonies, so May and her ilk will dutifully go along with Spain and the EU.
May did what she had to do.
Basically support the legal power. However there was no shrill condemnation of those in Catalonia.
Not only is this situation a huge fail for the Rajoy Administration, and the PP, which is in reality the party of “Franco”. It is also a huge fail for the Administration in brussels.
I might be wrong, but I get the feeling from the press that Rajoy has learnt a little from the negative international publicity around the referendum beatings and will try to ensure no blood this time, and the EU seems to be placing public emphasis on a non-violent response.
However, once the police attack dogs are let loose on crowds, I have my doubts as to how long any restraint will last – their culture is one of hit first, identify the crime later….
Don,
Given the two largest Catalan banks have shifted their HQs, what bank is now the largest banking institution headquartered in Catalonia?Don
No doubt one would suspect that this bank would be attracting inflows from Catalan Nationalists willing to support a bank that stuck properly by the region rather than fled?
Julian,
As far as I’m aware, the last bank standing in Catalonia is the Caixa d’Enginyers (literally Saving Bank for Engineers), which is a small cooperative-based lender. Compared to Caixabank and Sabadell, it’s small fry.
On Oct 10, just days after the exodus began, it published a press release expressing its continued commitment to the region. Whether it stays that way, time will tell. Not sure if locals are transferring their accounts to the bank, though.
An original viewpoint from
https://www.gurusblog.com/archives/no-ha-habido-declaracion-unilateral-de-independencia-the-fake-dui/28/10/2017/
Though I read it as the Catalan parlament being ultra cautious regards Spanish law, and so working from the depth of democratic representation instead of initiating open confrontation.
How far does this go to cleaning up the housing problem in Barcelona of too many foreigners living there and too many tourists coming in each day so that Catalonians are finding it unaffordable?
the current situation is a economic disaster for spain and catalonia all institutions are broken in catalonia with no concrete plan from any politicians.The society in catalonia is divided this is a huge problem the politicians in catalonia are destroying the región.The central government should check any collusion between them to take over the región.The economy of the región is broken because of this situation
That’s what happens when you give too much power to a región they even want the barca to play in the french football ligue and want to create there own cryptocurrency as there new money.The economy of the región is already broken and there are going to make things ever worse.a lot of people in catalonia want to stay part of the country but the medias only talk about the people who wants to separate from the country
“That’s what happens when you give too much power to a región”
Try
That’s what happens. when you give with one hand. then take almost all back with the other.
That is what Madrid did. That is the simple fact of the matter.
Which is what Re- energized this whole independence mess. AGAIN.
You pro rajoy false propaganda, is not appreciated, by those who simply seek truth.
Wolf
I think the issue here really is all about money since the GFC. We’re having Brexit, We’ve got Macron in France. We’ve Trump in the White House We’ve 93 politicians from AfD in Bundestag, We’ve Sebastian Kurz in Austria. Why is populism on the rise? I’ll venture a theory. The people are fed up of the BS and getting shafted by the “TIYIC” (The Intellectual Yet Idiot Class) who couldn’t find coconut on Coconut Island as Nassim Taleb explained https://medium.com/incerto/the-intellectual-yet-idiot-13211e2d0577 . The middle and lower class masses across the world aren’t making the income streams they used to enjoy
We’ve got class warfare going on where Mariano Rajoy has been sticking it to the folks in Catalonia with milking their income streams to pay the interest on the entire wasteful Spanish debt structures. Unemployment has been exacerbated by the GFC. The middle and lower classes of people across the world (including Spain) are paying for the 1% to lead lives of “Uber Luxury” akin to Mariano Rajoy’s and his cohorts in Madrid.
In Britain Theresa May is barely keeping a lid on the issues of overpopulation and overcrowding by moving forward with Brexit. The Opioids Crisis in Flyover country is at its basis all about the lack of a decent paying jobs, which have been exported away. Trump is trying to do some of the stuff that he promised 12 months ago. He’s also still got a foot in the camp of the Billionaire’s club with trying his new “Tax policy” implementation, Sarc/on.
That the Masses get extremely upset about not getting a decent slice of the “Cake” is understandable and they want their share of the good life.
Am I going to get involved? Nope but I will buy a bag of peanuts to watch it all go off on TV.. I truly think we’ll repeat history..
JM
A Catalan politician on the Left gave a very good speech the other day, simply describing the working conditions of average people, case by case: long hours, wholly inadequate pay, insecure contracts or none at all. Workers are very vulnerable to exploitation now – bosses know they can screw them.
This is certainly behind a lot of the trouble in Catalonia,and turned the minority fanaticism of the separatists into a popular cause, above all with the young.
It applies of course to the whole of Spain,and the situation is simply horrendous in the bottom half of the country – Andalucia.
But the upper classes, the wealthy and connected, have been steaming ahead, things have picked up very well for them after the nasty bump in 2008-11. Generally true in the EU as a whole I believe, and the system is currently working very well for them. A very wealthy friend told me that everyone he knew is quite happy with the status quo.
Cynic
You’ve nailed the issue in Catalonia. I’ve a friend who is genuinely in the 1% club and he very happy. At nearly 70 years of age, he’s got new trophy girlfriend and recently had a procedure to put plugs of hair where the won’t grow (I kid you not). He recently built a 12,000 sq foot home where the land was bought from Bernie Ecclestone (AKA Mr Formula 1) and he’s living the life. He’s adamant that I should get out precious metal investments, and I am equally adamant that its the only place of safety that’s left.
Until the entire system blows up there can be no safety for most of the 99%. Peter Thiel has his hideout in New Zealand and Mark Zuckerberg has his 700 acres in Kauai. The wealthy elites understand what is going on but want to keep milking the status quo..
It is time catalan republic passed laws against foreigners and tourists!
Forbid disgusting spanish food such as churros or chorizos and authorize only tortells or butifarres!
Sorry, Barcelona is a fully integrated, globalized, cosmopolitan, multicultural city.
The huge turnout for a pro-Spain demonstration in Barcelona shows how divided the body politic in Catalonia is on the issue of independence. There also seems to be a great deal of public distrust and contempt for the leadership of the Catalonian independence movement.
http://www.bbc.com/news/world-europe-41794087
There are some interesting opinion polls coming out of Spain and Catalonia:
Nationally, the Right (neo-Francoist) Ciudadanos party has gained on Rajoy’s PP, and within Catalonia, the balance seems to be with those who want at least more self-government, if not full independence. A majority want a legal referendum on the issue.
In other words, this could all have been avoided with a negotiated referendum like Scotland, and some will to find a political solution on the part of Madrid.
So, also, the principal result of all of this might be a rejuvenation of the Right throughout Spain, and the discrediting of separatism for some time. Some people will also be looking at the EU with new eyes, above all on the separatist Left in Spain.
I am coming to hope that there will be no violence, and Puigdemont and co. will be facing moderate jail terms -it seems they did everything possible in Parlement to avoid a charge of ‘rebellion’ sticking. Hopefully they will not be ‘martyred’ by deliberately vengeful sentences, but ‘Free Puigedement’ badges will be around for a few years yet.
The loony separatists in the Basque Country can go back into their boxes, having seen a text-book example of an attempted secession without sufficient popular support – which I always maintain should be 90% at least of the voters to have any chance of success -a genuine popular movement will have such support.
So, also, the principal result of all of this might be a rejuvenation of the Right throughout Spain, and the discrediting of separatism for some time.
Any “rejuvenation of the right” probably has more to do with growing public disaffection over seeing their formerly sovereign countries turned into bankster looting colonies by the “former” Goldman Sachs officials running the ECB and their stooges in the oligarch-captured Establishment parties.
Bit off the scale but from an interest point of view who do Barcelona Football Club bank with?
Looks like Catalonia’s independence bid has ended with a whimper.
http://www.independent.co.uk/news/world/europe/catalonia-spain-supreme-court-rebellion-charges-catalan-leaders-independence-separatist-carme-a8029026.html
Looks like you have made another of your baseless snap judgments.
This dispute has been running since the marriage of Isabella of Castille in 1469.
The last thing it is, is over.
Even the modern history of Mandela should warn you of that.
Rajoy has instructed the court he wants them charged. Hence his honeyed words if they are not in prison they can stand in the election as he KNEW they would be in Prison by then. Or in Exile.
Rajoy and the court have just created MORE MARTY’S to the cause.
The Rajoy administration is not interested in Healing this. The peopel of all Spain and the Eu will be the ones paying for Rajoys egotistical games.