What's certain is that this is the last thing Spain needs right now. What's less certain is whether it can survive.
A couple of weeks ago, Catalonia's President Arturo Mas stated, "If we cannot reach a financial agreement, the road to freedom for Catalonia is open," which naturally invited a backlash from Rajoy's conservative political allies.
The Rajoy argument is essentially the issue of infighting. That during a time of serious crisis, this separatist surge is a major fundamental distraction when compared to Spain's grave needs as a sovereign. Catalan autonomy, since the '78 adoption of the constitution has after all, been a part of Spain. That may not be what Rajoy is hostile to.
The Catalan argument is simple in the short term and more abstruse over the long. During a period of prolonged austerity and sacrifice, Catalonia is disproportionately suffering far more, because the richness of Catalan as a region, requires it "to transfer up to 9% of its GDP " each year to Madrid. The autonomy issue arises over fiscal authority. They quite simply want a greater say in taxation policy.
Catalonia for the record, represents about a fifth of Spain's GDP, is the nation's most heavily indebted region and like all others, is suffering under exhaustive austerity measures forcing it to request a fresh five billion euro credit line to cover its existing maturities. Stung by a fiscal refusal from the centre, it seems to want out
Believe me, no matter how this plays out, it will be a crisis. A crisis on top of a crisis? Yes, very much so.
As it stands, Rajoy has hordes of Catch-22's on his hands. While Europe waits for him to request assistance (ECB bond-buying), he has to contend with sovereignty issues and bail-out conditions. On top of that he has angry protesters and the pressure to announce a "credible" budget which would imply...more protests!
But wait, there's more! November 25th will see snap elections where the ballot will be "seen as a de facto referendum on President Arturo Mas's demands for greater independence".
Mas was naturally emboldened by the protests and surge in sentiment while obviously stinging from the refusal of Madrid to negotiate a change in the fiscal pact. Sounds like a risky but popular gamble to me - the vote was, after all called two years ahead of time!
Meanwhile, as Peter Spiegel reports from Brussels, the political eruption was amidst signs that Germany, Holland and Finland were trying to back-track on an agreement in June that would relieve Spanish bank-debt to the tune of tens of billions of euros. The statement said that "the plan to move bad bank assets would not apply to 'legacy assets' (a reference to wound-down banks under the Irish bailout program)".
Wait. There's more. Next week, the budget will be announced and likely to have overshot budget deficit estimates in the agreement with Brussels.
Ambrose Evans-Pritchard has a moving and sentimental piece in the Telegraph where he remembers how two weeks before he told a Catalonia newspaper how it "would be unthinkable for the Spanish state to stop Catalan secession by military force". That doing so would lead to a violation of EU treaties and thus Spain being suspended from the EU.
Now he's not so sure.
Colonel Francisco Alaman compared the crisis to 1936 (yes, 1936!) and stated, "Independence for Catalonia? Over my dead body".
Hyperbole indeed, but an accurate indicator of the dangerous sentiment descending over Spain's populace.
As the crisis digs deeper and becomes more entrenched, the focus shifts rapidly away from economics into politics and then into people. The horrible realization of the powerlessness of the government. The permanent scarring of austerity, a compounding of the debt-deflation nightmare and the reluctance to accept a fate dictated by a centre that lacks confidence.
As I wrote earlier, on Friday Madrid will reveal its funding needs for its broken domestic banking sector. This will kick off negotiations (a euphemism for arguments!) as to how much of the ESM pledged funds will be used and where the responsibility would lie.
Meanwhile, the sentiment and actions in the north nudge Spain towards a constitutional crisis, buoyed by a vocal and unrepentant leader. When you have approximately a million people marching for a common cause (Catalonia's population is 7.5 million), voices will be raised and anger will be directed.
Nothing encapsulates this best (not the blame, but the sentiment!), of the Popular party's Catalan leader Alicia Sanchez-Comacho who lashed out in reply to Mas stating that he was "leading us into a very dangerous process in which civic and social co-existence will be ruptured".
It seems like a perfect storm.
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