Yves here. Because Brexit has become an even more important story than anyone might have anticipated due to the unprecedented degree of Government arrogance and ineptitude, we’ve had to relegate some other important European developments to Links.
The escalating power struggle between Catalonia and the Spanish government seems noteworthy because it is starting to look like a game of chicken. While Catalonia is in theory in a weaker position, it does have a nuclear option of defaulting on its debt, which would be enormously detrimental to it and the government in Madrid. Even though the odds of Catalonia detonating that bomb still seem very remote, the aggressive measures by Spanish government to tamp down the incipient rebellion have increased the probably of very bad outcomes.
By By Don Quijones of Spain, UK, & Mexico and an editor at Wolf Street. Originally published at Wolf Street
“Do not underestimate the power of Spanish democracy.”
With these words, eerily reminiscent of a line once spoken by Star Wars villain Darth Vader, Spain’s Prime Minister Mariano Rajoy brought to a close a week of frenzied drama. It began with a foiled attempt by the Spanish police to close down the official website for the Catalan independence referendum. As often happens with web-based raids, the official site was up and running again within minutes, albeit with a different domain name.
Next, the Public Prosecutor’s office ruled that the referendum is now illegal “beyond all doubt” and instructed the Civil Guard, National Police, Catalan Police (Mossos d’Esquadra) and local police forces to act to stop it. It also launched criminal investigations against the entire Catalan government, the Speaker of the Catalan Parliament, the leaders of two separatist municipal associations and more than 700 Catalan mayors (representing 75% of Catalonia’s municipalities) for agreeing to cooperate with the planned plebiscite.
On Friday, Spain’s Finance Ministry joined the fracas by introducing a motion that would hand Madrid much greater control over how Catalonia spends its money in an effort to block the regional government from using state cash to pay for an illegal independence referendum. It has also frozen Catalonia’s monthly advance of the national liquidity fund (FLA), worth some €1.4 billion a month, and demanded that banks report any transactions related to the referendum vote to the central government.
The ultimate goal is to turn the Catalan regional government into an empty shell of an institution — one that has no autonomy, or for that matter any practical function or purpose.
Starving Catalonia’s regional government of funds could well make the vote logistically impossible, but the policy is not without its risks. As we warned a few months ago, if the Catalan government feels that it’s backed into a corner financially, it could weaponize its tick-tocking debt bomb. If Barcelona refuses to honor its debt to Madrid, both Catalan and Spanish debt could be declared in default, with disastrous consequences for both.
While such an outcome is still highly unlikely, especially given the potential scale of the fallout, there are no signs as yet that either side of this conflict is prepared to back down.
But how did relations between Spain and its richest province plumb such depths? How did Catalonia, a region that enjoys levels of autonomy in education, health care and public policing that would be the envy of many other parts of Europe, particularly those across the border in France, end up embracing a cause that would put it in direct confrontation with Spain’s central state?
While many of Catalonia’s grievances date back decades, and in some cases centuries, the latest explosion of separatist fervor is relatively recent. In 2007 just 14% of the Catalan population supported independence, according to the regional government’s own stats. By 2013 the number had more than tripled, to 48%.
What happened in such a short time to spark such a sea change in collective thinking? A large part of the answer can be found in the following three developments.
1. The Financial Crisis.
When Spain’s gargantuan property boom began crashing in 2009, prompting the domino-like fall of the country’s savings banks, the inevitable result was a massive contraction in the economy that laid waste to millions of jobs. By 2012 unemployment in Catalonia had hit 19% while in Spain as a whole it was a staggering 26%.
As public anger in Catalonia rose, so, too, did support for the separatist cause. In what was largely a calculated move to divert attention and blame away from its mismanagement of the local economy, unpopular cuts in public spending, and political scandals, the region’s governing party, Convergencia, hitched its wagon to the rising movement.
The Spanish government hardly helped matters by repeatedly reducing the amount of public investment in Catalonia, which merely fuelled Catalans’ sense of economic injustice. Catalonia contributes nearly a fifth of Spain’s gross domestic product, yet the region receives just 9.5% of Spain’s national budget. Even in the last couple of years, after repeated promises from Madrid that it will inject more funds, the total investment has continued to fall.
2. The Still Birth of Catalonia’s New Statute of Autonomy.
As with all of Spain’s autonomous communities, Catalonia’s regional government holds sway in certain areas of culture, education, health, justice, environment, communications, transportation, commerce and public safety. It also has its own police force, the Mossos d’Esquadra, though the Spanish government keeps agents in the region for issues relating to border control, terrorism and immigration.
However, Catalonia has virtually no say in fiscal matters, unlike Spain’s other separatist region, the Basque Country. That was all supposed to have changed with the new Statute of Autonomy signed in 2006 by the Catalan executive and Rajoy’s predecessor in government, José Luis Zapatero.
But the agreement was not to last. In 2010 Spain’s highly politicized Supreme Court, at the urging of the People’s Party, annulled many of the articles of the already diluted Statute, effectively stripping the agreement of any meaning and giving Catalonia’s independence movement its biggest boost in decades. When the decision was made, three of the twelve members of the Court had already finished their terms while a fourth member had died and not been replaced. Nonetheless, the ruling still stood.
As Rajoy says, “do not underestimate the power of Spanish democracy.”
3. A Full-Frontal Attack on the Catalan Language.
In Catalan culture one thing is more sacred than any other: the region’s language, which was ruthlessly banned from public and official use during the Franco dictatorship. But that didn’t stop the governing People’s Party from using its absolute majority to bulldoze into law a deeply unpopular education bill that, among other things, sought to introduce a trilingual model (Spanish, Catalan and English) in schools that would de facto suspend the current Catalan immersion system. The Catalan executive refused to comply with the law.
It was its first major act of open defiance.
Now, five years later, it’s in open rebellion. If Rajoy carries out his threat and unleashes the full power of Spanish “democracy” in the weeks ahead, stripping away Catalonia’s autonomy at a time that it’s crying out for more, the rebellion could even become a revolt. By Don Quijones.
The closer the referendum, the more draconian Spain’s response. Read… Investors Fret as Catalonia’s Independence Turmoil Seethes