Everything You Need To Know About The Catalan Secession Movement That's Throwing Spain Into A New Crisis

Artur Mas CiU Catalonia

Photo: flickr / convergenciaiunio

While Spanish voters descend on Madrid in massive protest gatherings, another major headache for the Spanish government is in the works: a secession movement in Spain’s most economically critical region, Catalonia.Catalonia, Spain’s largest region by output, accounting for 18.7 per cent of Spain’s total GDP, is also the most indebted – its total debts of 42 billion euros are worth nearly 4 per cent of the entire country’s economic output.

As the country’s most indebted region, Catalonia has already had to request a bailout from the central government – to the tune of just over 5 billion euros.

Meanwhile, Spanish prime minister Mariano Rajoy is trying to push through unpopular austerity measures and economic reforms that would pave the way for additional aid from troika lenders when necessary, but Artur Mas, the Catalan president, will have none of that.

A spokesman for the Catalan regional government declared after the region requested their 5 billion euro bailout from the central government, “We will not accept political conditions for the aid.”

Then, Catalonia asked for more autonomy in collecting taxes, a proposal Rajoy flatly rejected, further fueling the conflict.

Striking back against the central government today, Mas called for early regional elections in November, and even a discussion on secession from Spain. Via Reuters’ Julien Toyer and Fiona Ortiz:

Artur Mas, the conservative president of Catalonia, announced on Tuesday he would hold early elections in November after Rajoy rejected his call for more tax autonomy.

The vote, likely to be presented politically as a referendum for secession, is a challenge to Rajoy, who’s People’s Party has threatened to take central control over the budgets of regions like Catalonia that fail to meet deficit reduction targets.

Catalonia would face a number of constitutional hurdles to secede, and such an outcome is seen as unlikely any time soon.

Analysts say Mas is using the growing independence sentiment as a threat over Madrid to secure more fiscal autonomy.

And Catalans by and large do not like being a part of Spain. A recent Roubini Global Economics client briefing highlights just how bad sentiment there was last time a referendum on the issue was taken:

In December 2009, an informal referendum on Catalan independence took place, based on the question of whether Catalonia should become an independent state within the EU. Almost 95% of those who voted wanted Catalonia to leave Spain; however, Madrid dismissed the referendum and it had no legal impact, not least because only 30% of the 700,000 eligible voters turned up to vote.

The nationalist CiU party in Catalonia is dangerously close to a majority in the regional parliament.

SocGen’s Ciarán O’Hagan writes in a note this morning that they only need to secure six more seats:

Early elections in Catalonia on 23 November managed to raise worries a notch. The centre right Catalan nationalists, as Convergència i Unió (CiU) have called them, think the results will improve their representation, adding to the pressure for fiscal separatism. In November 2010, they won 62 seats out of a total 135 in the regional parliament, up from 48 seats in 2006. So 68 seats needed for a majority, six more than today.

If they can take control, the standoff between the Spanish central government and Catalonia will likely get even worse, further jeopardizing Spain’s ability to comply with aid request going forward and perhaps ultimately the efficacy of the ECB’s plan to save the euro.

Citi’s Guillaume Menuet writes today that “this announcement appears to be a direct challenge to Spanish PM Mariano Rajoy” and that “it highlights in our view the growing problem that the central government will face when trying to impose a higher degree of control on regions that are net contributors to the country’s budget.”

As Deutsche Bank’s Jim Reid opines, “It seems that trying to be a national level European political expert is necessary these days, but maybe Spain is showing that you also need to immerse yourself in regional politics too.”

ALSO: In his plot to save Europe, Mario Draghi made one crucial mistake >

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