Why It’s Not Over in Catalonia


Source: Bloomberg Markets

Spanish Prime Minister Mariano Rajoy has two piles of problems on his desk, an associate joked: those that have solved themselves and those that will solve themselves if they are given enough time.

There’s already evidence, though, that the would-be nation of Catalonia won’t just go away as the most troubling issue facing the country, its economy and Rajoy’s six-year premiership.

Rajoy held off demands for decisive action during weeks of high drama before seizing control of the region, which accounts for a fifth of Spain’s economy. The plan to restore permanent stability now hinges on preventing the separatists winning a majority in the Catalan election Rajoy called for Dec. 21. Polls suggest the result will be on a knife edge.

“Do I think it’s a genius political strategy?” said Ken Dubin, a political scientist at ISDE law school in Madrid. “It’s classic Rajoy. It’s obvious that the independendistas overplayed a not particularly good hand, but does the Spanish government have any plan at all for if there’s a majority for independence?”

The brinkmanship culminated in judges jailing Catalonia’s separatist leaders and a legal, if not complete, victory for Rajoy. Spain was left intact and his authority was renewed as his opponents crumbled. But Rajoy is seeking to limit the fallout rather than addressing the root of the Catalan grievances over the right to determine their own nationhood that have plagued Spanish leaders intermittently for centuries.

The risk is that the fragile peace unravels after next month’s vote and Spain is engulfed in turmoil again.

Economically, the European Commission says the potential damage to Spain is impossible to quantify. Barcelona stands at the center of a $250 billion Catalan economy, bigger than Finland, Portugal or Greece. Already, the Spanish stock market is down this quarter while most of those in Europe are up.

Politically, the prime minister’s critics in Madrid would return in force. While they have very different recommendations for how to settle the Catalan issue, they all complain about Rajoy’s passivity. Constitutional Court judges are growing frustrated with the tactic of repeatedly calling on them to stop the Catalans, according to a person familiar with their thinking.

Jose Maria Aznar, Rajoy’s predecessor as prime minister and People’s Party leader, complained that the government has surrendered the public debate in Catalonia to separatists.

“When you leave a vacuum in politics, others fill it,” Aznar said in an interview with Cadena Ser radio. Rajoy needs to “set out an overarching political project for Spain,” he added.

Rajoy, 62, is known for stalling. He cites not requesting a full bailout for Spain in 2012 as his greatest achievement as prime minister, though he doesn’t include the 41 billion-euro ($48 billion) bank rescue he requested from the European Union.

That approach has seen him through a series of tests during his time in office: the debt crisis, allegations of personal corruption that persisted despite his denials, and a 10-month standoff when opponents tried to oust him after he lost his majority in 2015.

The latest turmoil escalated with him deploying riot police on Oct. 1 to halt Catalonia’s illegal referendum on breaking away from the rest of Spain and ended with him revoking its autonomy after a unilateral declaration of independence on Oct. 27.

He rejected demands from hawks within his administration in Madrid for a harsher crackdown against the Catalan separatist campaign before it gathered momentum. He also rebuffed appeals from his advisers in the rebel region for conciliation.

To his credit, Rajoy’s intransigence left his opponents in disarray. 

The separatists haven’t agreed on a united front so far to contest the election partly because ousted Catalan President Carles Puigdemont has been discredited by fleeing to Belgium after the parliament in Barcelona declared independence. They also have failed to gain any significant recognition of their struggle in European capitals despite a five-year effort to win support.

But short-term tactical victories won’t do anything to resolve the underlying tensions, and it may be a case of not really getting what makes the Catalans tick. 

Two businessmen who have operated as intermediaries between Madrid and Barcelona said that Rajoy and his team don’t understand the region and especially the need to appeal to hearts and minds as well as pocketbooks.

Echoing moderates from the separatist camp, they said that the government should be offering a new settlement with the Catalans that recognizes their historical identity.

Rajoy has agreed to start a debate on constitutional reform in parliament next year, a condition that the opposition Socialists extracted in return for backing his takeover over the Catalan administration last month via Article 155 of the 1978 constitution.

“We support the idea of recognizing Catalonia as a nation,” Socialist party Chairwoman Cristina Narbona said in an interview. Rajoy’s stance “is generating more and more disaffection. Then more and more people asking for more independence from Spain,” she said.

Rajoy, though, is skeptical of politicians who claim they can fix the Catalan problem. Agreeing to discuss changes to the country’s legal framework doesn’t mean that he’ll endorse any recommendations that emerge.

Indeed, the prime minister’s rhetoric suggests his ambitions for Catalonia are far narrower. His constant emphasis is that they should obey Spanish law rather than offering a deal that could cause resentment in other parts of the country. Rajoy is also hostile to anything that looks like a reward for political leaders who broke the law.

Rajoy plans to take a more prominent role in the Catalan campaign. He’s calculated that less fervent voters are likely to break against independence, so he’s seeking to maximize turnout. Holding the election on a Thursday rather than the traditional Sunday will allow government institutions to encourage their employees to vote.

“Together we need to protect the ties that bind us,” Rajoy said at a campaign event in Barcelona on Sunday. “We want to recover the Catalonia that belongs to everyone — plural and diverse, in Spain and in Europe.”

Two people familiar with his strategy said the government will look also to play on the fears of middle-income Catalans by emphasizing the risk to their pensions and healthcare.

If he succeeds, governing Catalonia would be complex given the mix of political parties. And if he falls short and the separatists win, the Article 155 measures will place significant constraints on their administration in Barcelona. 

The underlying problem –- that Spanish democracy offers no framework for the Catalans to follow the Scots in the U.K. and vote on their future –- will become yet more intractable.

“If we’re where we were before the intervention, we’ll be worse off,” Aznar said. “And most of all, the Catalans will be worse off.”

— With assistance by John Micklethwait, Rodrigo Orihuela, Sharon R Smyth, and Samuel Dodge

Source: Bloomberg Markets