Don Quijones: The Mother of All Storms Builds Over Catalonia’s Independence

By Don Quijones, Spain & Mexico, editor at Wolf Street, who also writes at Raging Bull-Shit. Originally published 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.

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)

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