Why Catalonia’s bid for independence is Europe’s next headache

Why Catalonia’s bid for independence is Europe’s next headache

Separatist parties could win Catalonia's election - but can the province survive as an independent state?

By Jon Yeomans5:00AM BST 10 Sep 2015/ http://www.telegraph.co.uk/finance/economics/11849126/Why-Catalonias-bid-for-independence-is-Europes-next-headache.html

Friday marks not just the National Day of Catalonia but the beginning of a high-stakes election battle.

Catalonia goes to the polls on September 27 in a regional election that is being billed as a second vote on independence. Last year, in an unofficial referendum, 80pc voted to leave Spain, on a turnout of 40pc.

A move for Catalan independence could throw the EU into a new political crisis and create havoc for the Spanish economy, which is only just emerging from a long downturn.

Catalonia has traditionally been Spain’s industrial and economic powerhouse, but the separatist movement has been growing in strength for decades. Here’s why the fiercely independent province could be Europe’s next big problem.

What’s happening in Catalonia?

All 135 seats in the Catalan parliament are up for grabs on September 27, with the election campaign beginning in earnest on September 11. The resulting parliament will also vote in the President of Catalonia.

Pro-independence forces are expected to gain the upper hand in the election - the third in five years - though it could result in a coalition.

There have been splits among the parties in favour of breaking away, which have now resolved into two groups - Sí que es pot (Yes we can) and Junts pel Sí (Together for Yes). The latter includes the CDC, the political party of current Catalan president (and election instigator) Artur Mas.

Another Junts pel Sí candidate is Bayern Munich coach and former Barcelona FC boss Pep Guardiola, though he will not take up his seat if he wins. “The more people who vote, the better it will be for Catalonia, for Spain and for Europe,” he said in July.

Why do Catalans want independence?

The answer to this goes back to at least 1469, when the crown of Aragon and Catalonia passed into Castilian control with the marriage of Ferdinand of Aragon and Isabella of Castile. Catalonia had been a powerful sovereign state with its own parliament up to 1162, when it unified with Aragon. But its absorption into Castile, run from Madrid, marked something of a reverse takeover. Many Catalans believe their culture, traditions and language have been steadily eroded ever since, reaching a nadir under the dictatorship of General Franco (1939-1975).

Since the restoration of democracy in the late 1970s, Catalonia has been one of Spain’s 17 autonomous communities. But calls for full independence have continued to grow, particularly after the financial crash of 2007-8 and the austerity measures imposed by former socialist prime minister José Luis Rodríguez Zapatero and his conservative successor Mariano Rajoy.

One of the Catalans’ chief complaints is that their tax revenue subsidises other parts of Spain: in 2010, Catalans contributed €61.87bn in taxes and fees to the Spanish Government, but only got back €45.33bn.

The Catalan government has said it could claw back 8pc of its GDP if it didn’t have to make fiscal transfers to the Spanish government.

Not all Catalans want independence, of course. Pro-federalist groups include Rajoy’s party, the centre-right Partido Popular (PP), and the Socialist Party of Catalonia (PSC), the regional offshoot of Spain’s main centre-left opposition party, PSOE.

Wasn’t there a referendum on independence last year?

Yes, after a fashion; 2.2 million voters out of an eligible 5.4 million voted in an unofficial plebiscite on November 9, 2014, with 80.7pc declaring themselves in favour of independence. The central government in Madrid had fought strenuously to block the vote.

Many pro-union voters may have opted to stay at home, given the poll’s unofficial nature. However Artur Mas said the vote showed Catalonia had “earned the right to a referendum”. With Madrid refusing to budge, in January he called snap regional elections for this September to try to force the issue.

What will happen if separatist parties come to power?

If the pro-independence bloc holds a majority, it could begin moves to make a formal declaration of independence within 18 months, such as drawing up a Catalan constitution.

Pro-independence campaigners have threatened to make an immediate declaration should Madrid try to halt the process.

“We are completely serious about this, and everyone needs to understand that we’re going to do it,” Raül Romeva, a candidate for Junts pel Sí, told El Pais. “We’ve tried every other way but they didn’t let us. This is the chance to do what we couldn’t do on November 9 and obtain a democratic mandate.”

Mas has talked openly about setting up "state structures" such as a new tax authority, social security, a diplomatic service, a central bank and even a defence force. "It would be impossible for Catalonia not to have its own defence structure, even though it would be a light one," he told the FT earlier this week.

Such moves would meet with vehement opposition in Madrid, if not outright alarm. “Catalan independence will never happen. It's nonsense,” prime minister Rajoy has said.

Rajoy himself has a fight on his hands to cling to power, with Spain due to hold a general election by December 20. He will try to shore up his core vote by taking a hardline stance on Catalan separatism.

Even if separatists form a majority, independence won’t be forthcoming, according to analysts at Credit Suisse, who point to a poll in July showing that Catalan support for breaking away had fallen to 40pc, from 50pc two years ago.

“We continue to believe that the secessionist fervour is a response to fiscal austerity. Much of it would calm down if the Madrid government re-negotiates intra-regional transfers with Catalonia and the region is allowed to have more tax autonomy,” they say.

No such renegotiation will occur before the general election, which Mas has vowed to contest as a third ballot on independence.

How could an independent Catalonia function?

A declaration of independence would precipitate a crisis in both Spain and the EU. There are a number of possible scenarios:

Catalonia could continue as an autonomous state within Spain, possibly with greater powers

Catalonia could become a new EU member in a negotiated settlement with Spain

Catalonia could become part of the European Free Trade Association of non-EU countries, similar to Switzerland or Norway, or form some type of bilateral agreement with the EU

Catalonia could be expelled from the EU, with Spain using everything in its power to isolate the breakaway state internationally.

Could Catalonia survive as an independent state?

The answer almost certainly hinges on the terms of the region’s “divorce” from Spain.

A messy break-up would naturally hurt Catalonia - and Spain - in the short term, but at least one report has suggested that by 2030, the region could be significantly better off as an independent state.

The Barcelona Centre for International Affairs, in conjunction with Brussels think tank CEPS, affirms: “Catalan secession from Spain is beneficial for Catalonia in all the cases examined, reflecting to a large extent the positive impact from terminating Catalonia’s net fiscal transfers to the rest of Spain.”

• The European regions that could be better off going it alone

Catalonia’s GDP is €209bn, roughly on a par with that of Portugal. But its economy would almost certainly take a hit in the wake of a split, as occurred with the Czech Republic and Slovakia on their mostly amicable separation in 1993.

Were Catalonia to be cast out of the EU, it would have to introduce a new currency; serve a public debt in a foreign currency without access to bond markets; and have restricted access to the EU market. It would be unable to call upon the help of the European Stability Mechanism (ESM) and the European Central Bank (ECB), which were both central in bailing out Greece.

Spain would become Catalonia’s biggest trading partner, but Madrid could seek to recoup some of the billions it would lose in tax revenue from the region by imposing duties on Catalan goods and services.

Foreign investors may also think twice about putting money into the breakaway state while legal and political instability exists.

Could an independent Catalonia stay in the EU?

In common with the Scottish independence campaign last year, this is an unanswered question.

The Catalan government itself, in a study considering this problem, acknowledged that the EU could refuse to begin talks on readmitting it to the Union, “either because it is unwilling to acknowledge Catalonia as a state or because negotiations for membership of the Union have been blocked”.

However, it highlighted the EU’s “extremely flexible and pragmatic attitude in finding solutions for unforeseen problems”.

Of course any such re-entry to the EU would be opposed by Madrid, which would expect to count on Berlin’s support. So Angela Merkel could end up having the final say - something the Greeks know all about.