Yves here. I feel a bit neglectful in not posting on Catalonia tonight, but I have a major competing blog project that is chewing up a ton of time. However, we are also in the midst of what Lambert calls an overly dynamic situation, which means the possible outcomes are very bushy (as in if you were to try to draw decision and event nodes, you get tons of possible paths very quickly).
A few observations:
What happens with the police force is key. Madrid has dismissed Catalonia’s chief of police and its director general. The chief of police was already being investigated for possible sedition charges.
The rank and file stood aside during the referendum, which led Spain to send in the Guardia Civil, which used what was widely decried as excessive force to try to shut down voting. If substantial proportions of the police force refuse to obey orders, Madrid will have an optical and practical problem on its hands.
No one knows how much support there is now for independence in Catalonia. Prior to the election and for years before that, independence never polled as a majority position. I have yet to see any polls post referendum. The high level of injuries during the election probably moved some fence sitters into the separatist camp, but how many? Moreover, even among the separatist parties, some would have been satisfied with more devolved powers, most important, Basque levels of spending autonomy, as opposed to a full divorce. But with support pre-referendum for independence at only a bit over 40%, if there were to be civil war (which per below, I see as unlikely unless Rajoy makes a bone-headed move, like sending in troops), it would seem to be at least likely to occur within Catalonia as between Catalonia and Spain.
If Madrid encounters widespread disobedience, its real nuclear weapon is the banking system. Restricting access to or shutting down the payments system in Catalonia would produce very different fault lines that the use of force to assert control. First, it doesn’t generate dramatic video clips of thuggish behavior. Second, it hits people in their wallets, often quickly. Small businesses and non-salaried workers will feel the pinch quickly.
The relatively rapid timetable for new elections appears to be intended to minimize the amount of time Spain directly rules Catalonia. Rajoy likely sees that as an effort to reassure Catalonia; it’s doubtful many of the locals will be mollified much.
This extract suggests Catalonia won’t find any support from “international law”:
If you’re wondering how international law impacts on the Catalan UDI situation, this section of the Quebec Reference explains a good deal. pic.twitter.com/t6ScNsm81Z
— PeatWorrier (@PeatWorrier) October 27, 2017
There’s been some discussion of the article, What Political Science Tells Us About the Risk of Civil War in Spain. While the historical analysis is very useful, the author appears to have mis-applied it to Catalonia, at least as of now (if Madrid becomes overly aggressive, the situation could change significantly). I still think the most likely outcome, absent undue use of physical force by Madrid, is that a radical paramilitary group or groups will emerge, as opposed to civil war level resistance.
Due to time pressure, I’m hoisting this comment from the Financial Times which debunked someone else trying to draw a comparison between Yugoslavia and Spain:
Story is completely different. Kosovo was the poorest part of Yugoslavia, inhabited mostly by Serbians and ethnic Albanians who were minority until after 1945 (before 1945 Serbians were majority in Kosovo) . After communist regime took over control of Yugoslavia (where Serbia was powerful member mostly due to its economic and military strength) sought to weaken Serbia position by favoring Albanians minority and also overlooking mass migration of Albanians from neighboring Albania to Kosovo. Most Albanians were also boycotting government institutions. By 1980-s Albanians were overwhelming majority in Kosovo and Serbs were angry as Kosovo Serbs were minority in their own land with very few real rights despite the fact that Serbia was economically helping and financing Kosovo institutions.
So, Catalonia and Kosovo and totally different stories as Catalonia is the richest part of Spain plus they are member of Europe and even if they somehow gain independence, Europe will never accept this in reality as this will open Pandora’s box in other EU members. Plus, majority of young people in Catalonia are educated and not poor which is totally opposite from young Albanians in Kosovo in 1980-s.
By Don Quijones of Spain, the UK, and Mexico, and an editor at Wolf Street. Originally published 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