Most commentary on Catalonian nationalism dwells on whether this is something that’s going to have implications outside of Spain. How worried should we really be if the Catalans get a bit more fiscal autonomy or even independence?
First, let’s rewind. Most analysts think that full independence is very unlikely anytime soon, and we’d agree. Madrid has a whole arsenal of legal measures it can use to prevent even a referendum on the subject.
From Alex White at JP Morgan (our emaphasis):
The Spanish Constitution of 1978 does not permit regional referenda;under the Constitution as it stands, there is no way that Catalan voters could even be asked about their views on greater fiscal autonomy, let alone independence. In practice, the constitution could be changed; the Spanish government has recently amended it to introduce the budget rules implied in the European Fiscal Pact, which was instituted through the use of a constitutional amendment. President Mas will have a strong political case for securing a referendum if [Convergència i Unió] performs well in November; if Madrid hides behind constitutional objections we expect this simply to lead to an escalation of pro-independence sentiment in Catalonia (although we do not discount the possibility of the Rajoy government handling things poorly).
And, of course, Catalonia would need to apply to join the EU just like any other country, and require a Spanish vote to be admitted. That’s unlikely, to say the least. From White again:
Were Catalonia ever to achieve independence it would likely need to reapply for membership of both the Euro area and the European Union as a whole (the Catalan government has indicated that it would wish to be a member of both). The process of applying for membership, under Article 49 of the European Treaty (TEU), could present significant difficulties. An application would take considerable time, even under the most benign scenarios, and impose significant transition costs. Comments from European Justice Commissioner Reding over the past few weeks do suggest however that the EU institutions would be ready to take a constructive attitude toward a Catalan
membership application (there is some possibility that the EU might allow the ground-work for an application to be laid before formal independence is secured if this were the route the region takes).
So while the Catalan leader Artur Mas may be talking about independence, he likely knows well enough that more fiscal automony is about as much as he’s likely to get. Other regions, such as Navarre and the Basque country, have negotiated their own models that limit net fiscal transfers to Madrid, and Catalonia should eventually be able to do something similar.
However, even if the Catalonian issue is settled with the region getting more autonomy, it has the potential to open more than one can of worms.
Most obviously: are other wealthy Spanish regions also going to demand a similar arrangement? How would this affect the central government’s fiscal position?
But the Catalan debate actually raises a much bigger question that goes right down to the essence of the eurozone as it stands. As White says:
Why should Germans support poorer Spanish regions if Catalans object?… 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.
It’s a very good question. It’s one thing if the Chinese don’t want to support Europe, and if the Germans don’t want to support the Greeks — but if the Catalans don’t want to support their own countrymen, does it not raise serious questions about the European project on a broader level?
With the Catalan elections on November 25 coinciding with a growing realisation that Greece will need up to €30bn in additional financial assistance as well as Spain’s growing funding problems, the issue will be hard to ignore.
Not saying we have any of the answers, but if you want to read more about the problem, we’ve chucked up White’s note in the usual place.
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