Catalans maybe like this independence idea | FT Alphaville

Catalans maybe like this independence idea

Catalonia’s regional election on Sunday delivered a big victory for the separatist movement — but a more fragmented one than had been expected. Four separatist parties won 87 of the regional parliament’s 135 seats. The ruling CiU party didn’t do so well, losing 12 seats to hold 50. This was much lower than polls had suggested, and follows a battle between supporters and opponents of independence that has become increasingly bitter, as the allegations against Artur Mas last week illustrated.

As the FT’s Miles Johnson reports, the vote brings the prospect of a stronger push for Catalan independence. Regardless of the CiU’s own performance, the surge in support for smaller separatist parties raises the big question of what this means for heavily-indebted Catalonia, and for Spanish prime minister Mariano Rajoy.

So what might an independent, or even a more autonomous, Catalonia mean for the Spanish debt crisis?

JP Morgan’s Alex White considered this question a month ago, and outlined the various legal and financial barriers to Catalonia seeking and achieving full independence. It is not even clear whether a referendum on independence is possible under Spain’s constitution, he wrote, and we probably don’t have to detail just how complicated the issue of gaining EU membership might be for a newly-created state.

Lastly, there’s the problem of cost: White estimates that while Catalonia makes net fiscal transfers (outside recession periods) to the central government of about 7 to 8 per cent of its total output, the financial benefits of independence might only amount to 3 per cent per year, even assuming minimal transition costs and a maintenance of trade with Spain.

However, White still thought it likely that some big changes to Catalonia’s relationship with Spain were likely, and that could include more fiscal autonomy. Even without independence as such, more fiscal autonomy would raise a lot of problems for Spain and the wider eurozone:

Should Catalonia be able to renegotiate the terms of its relationship with the centre in a way which limits fiscal transfers this would have an impact on the Spanish central government’s fiscal path. It would also set a further precedent, which would have an impact on Madrid’s ability to control the other 16 regions, the wealthier of which may also be encouraged to request greater fiscal freedoms. This would pile further pressure on the sovereign if, as is likely, it is the transferring regions which choose to renegotiate the terms of their relationship with the centre.

Which could raise some obvious but very uncomfortable questions:

More broadly, this opens a larger political question for the Euro area as a whole; namely that if Catalonia is unprepared to subsidize Spain’s poorer regions, why should Germany or other countries of the European north? This is the same question that IMF members (e.g., China) ask of the Euro area as a whole in its management of the crisis. We expect this question – of the political mandate for transfers – will ultimately need to be tested in referenda across other parts of the Euro area; Catalonia could simply be leading the way.

Update: Re all the disagreement in the comments, granted perhaps calling it a ‘big’ victory was overly strong, but the vote does seem to indicate that support for independence is stronger than before. Obviously CiU lost 12 seats in its gamble to win a mandate for a referendum, but ERC which is certainly pro-independence gained 11, while CUP which is also very pro-independence won three seats up from zero. Ciutadans, an anti-separatist party, gained six seats too, so there’s polarisation going both ways. But it’s hard not to conclude, from the mix of seats and survey results like this below (from November 22), that support for independence is growing:

The coverage seems to differ based on whether it’s considering the shift in sentiment or just the feasibility of holding a referendum imminently. While CiU and ERC both support a referendum, they wouldn’t be obvious partners in a coalition government as they have different leanings (CiU is centre-right, ERC is left). So from that point of view, the election might make a referendum seem less likely in the short-term.

But we’re not sure if that’s the point… as White’s note explains, the practicalities of an independence referendum (such as whether it’s even constitutional) were not quite clear, even in the event of a CiU absolute majority. The point is that independence is looking rather more popular just now, and the question we’ve attempted to air here is what a shift in that direction might mean, especially if it involves some fiscal autonomy.

Related links:
Separatists reawaken Spanish nationalism – FT
Rising tensions before Catalan vote – FT Alphaville