Is Catalan Secessionism a Real Risk for Spain? updated 04122012

Is Catalan Secessionism a Real Risk for Spain?

1© Mediterranean Capital Management. All Rights Reserved.

for Spain?(Update, Dec. 4th 2012)

Secured Distressed Debt Market in Spain

Manuel Guillén i SolàChief Executive Officer

New York, December, 4th 2012www.mediterraneancapital.com

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� Catalonia has a proud tradition of self-rule dating from the Middle Ages. The Catalan revolt against Spanish overlordship in 1640 and the subsequent war, resulting in Catalonia’s defeat, reverberate to this day. Later, in 1714, Catalan troops were again defeated by the Spanish army and Catalonia lost its self-ruling privileges. Franco’s dictatorship was the latest period of political and cultural repression.

� Main reasons for current increase of secessionism in Catalonia are:

Is Catalan Secessionism a Real Risk for Spain?Secured Distressed Debt Market in Spain

New York, December, 4th 2012


� First, a fiscal system whereby Catalonia, which has a relatively rich economy the size of Portugal’s, transfers up to 8 per cent of its GDP to Madrid each year;

� Second, the 2010 decision of Spain’s constitutional court to strike down reforms approved by the Catalan and Spanish parliaments in 2006 that significantly enhanced home rule;

�Third, lack of execution of infrastructure investments previously committed with the regional government; and

� Fourth, reform of the educational system and re-centralization of political and economic competencesalready transferred to Catalonia.

Catalonia vs. SpainMain Economic Indicators

� Catalonia accounts for 18% of the total population of Spain.� GDP of Catalonia accounts for 210.150 bn €, 19% of the Spanish GDP.� The region generates 26,6% of the total exports of Spain� Catalonia transfers to the rest of Spain in excess of 16.000 M € per year in taxes.

Source: Mediterranean Capital Management analysis based on data and opinions from Financial Times, The Wall Street Journal, The New York Times and Spanish newspapers.

http://www.idescat.cat/pub/?id=aec&n=356&lang=en


Political Scenario

� Artur Mas, Catalonia’s president, and his governing centre-right Convergència i Unió party (CiU) are nationalists but not an explicitly pro-independence movement.

� Until 2012, CiU’s primary short-term goal was more control over taxes collected in Catalonia, an objective with which Catalan business establishment sympathizes.

Economic Scenario

� Some concerns are raising about the impact that a secessionist process in Catalonia would be for the Spanish economy:

� Loss of 16.000 M € in net tax transfers per year coming from Catalonia to the rest of Spain.� Loss of 26% of the country’s exports and a higher % of the country SME’s vast network.� 21% GDP drop with not equivalent reduction of




with which Catalan business establishment sympathizes.

� But CiU have not kept up in recent months with the secessionist radicalization of broad sectors of public opinion and, consequently, have begun to harden their stance.

� A resolution to be debated by Catalonia’s parliament suggests that “fitting Spain and Catalonia together” is “a path without direction”.

� Regional election was celebrated on past November 25th and catalans voted for a large majority of pro-independence lawmakers, but CiU saw his party's majority reduced by 12 seats.

� 21% GDP drop with not equivalent reduction of the national debt.

� It’s unclear the impact that an eventual Catalan independence would have in the rest of the Spanish regions:

� Basque Country (Euskadi) has strong nationalist identity and could be the next region to ask for independence. Esukadi accounts for an additional 6% GDP and 5% population. No major concerns about the rest of the regions.

� It’s expected that an eventual secessionist process in Catalonia would last at least 6 to 8 years.



� EU views the secessionism risk without enthusiasm. There are other countries – Belgium, Cyprus, Italy, Romania, Slovakia and the UK –where separatist movements and national

� Yes, but it would not be plain sailing.Catalans have a highly developed sense of national identity.

Position of the European UnionIndependent Catalonia…

Would It Be Viable?




where separatist movements and national minorities might draw inspiration from Catalan secession.

� But, in extremis the EU would have little choice but to respect an independence process that scrupulously observed international law. The EU was unhappy about Czechoslovakia’s break-up in 1993 but accepted it nonetheless.

� Even many second-generation Catalans –children of Spanish speakers who moved to Catalonia from other parts of Spain from the 1960s onwards – are attracted by the prospect of independence.

� But Catalonia’s economy has struggled in recent years: its per capita disposable income and labour productivity have grown more slowly than the Spanish average.


November 25th Regional Election – Results & Consequences



Catalans voted for a large majority of pro-independence lawmakers, but CiU saw his party's majority reduced by 12 seats

•Conservative nationalist Convergence and Union (CiU) won the election, but with a reduced vote compared to 2010. The party’s support fell 8% to 30.5%, giving it 50 seats in the 135-seat parliament from 62 in 2010.

• The Republican Left of Catalonia (ERC) almost

© Mediterranean Capital Management. All Rights Reserved. 7Source: Mediterranean Capital Management analysis based on data and opinions from Financial Times, The Wall Street Journal, The New York Times and Spanish newspapers.

• The Republican Left of Catalonia (ERC) almost doubled its vote to 14% and gained 11 seats to take 21 in total and become the second-largest force in the parliament.

• The Socialist Party (PSC) loosed 8 seats to come in on 20.

• The right-wing Spanish Popular Party (PP) of Prime Minister Mariano Rajoy, despite picking up one seat, came into the fourth place on 13% and 19 seats.

•The left-wing Initiative for Catalonia Greens (ICV) gained 13 seats.

• The unionist Citizens’ Party (Cs) gained 9 seats and the radical pro-independence Popular Unity Candidates (CUP) took three seats.

� Separatist parties won 74 of the 135 seats in the Catalan Parliament. Of that total, however, CiU only collected 50 seats, down from the 62 seats that they won in 2010.

� Although the polls had suggested that CiU coalition, which

A mess for the Secessionists…



Consequences: Is Still Catalan Secessionism a Real Risk for Spain?

“The result is a mess (…)”; The Economist, December 1st 2012

…and also for the Unionists

� The People’s Party of Spain’s prime minister, Mariano Rajoy, came fourth, gaining just one extra seat (19), and has lost a valuable ally in Mr. Mas, whom it had propped up for his previous two-year term and, in fact, is a reformist and fiscal conservative.


� Although the polls had suggested that CiU coalition, which is more separatist than ever, would win an absolute majority, it got, unexpectedly, its worst result since 1980.

� CiUs new coalition partner is likely to be the Catalan Republican Left (ERC). ERC has announced that could offer support to Mr. Mas, but without joining his government and as part of a “plural project” toward Catalan sovereignty.

� Whereas ERC, which more than doubled its number of seats to 21, demands full independence, CiU is split. Its minority component, the Catalan Democratic Union, is more restrained than Mr Mas, seeking at most a confederation. It also heartily dislikes ERC.


� Instead of helping Mr Rajoy to reform the economy and cut public spending, CiU will now lurch into confrontation. It wants more tax money for Catalonia, but there is none to spare. ERC will bind it to a promised referendum on independence that Mr Rajoy’sgovernment plans to reject.

� ERC has asked to CiU to stop making budget cuts in sensitive areas like health and education. Agreeing to such fiscal red lines, however, could make it harder for Mr. Mas to meet budget deficit targets set by Madrid, as well as reduce a Catalan debt pile that is by far the largest in the country — about €42 billion ($54.4 bn), out of a total of €140 billion for Spain’s 17 regions.

After November 25th Result… What’s Next?

� Spanish Central Government is still facing a clear separatist challenge, but it now comes from a Catalan leader who first has to form the kind of coalition with a left-wing party (probably ERC) that has historically not been a success.

� Mr Mas and CiU may wait four years before

� Until his separatist project put them on a collision course with Central Government, CiU imposed some of the deepest spending cuts among Spain’s regional governments. Now, both coalition alternatives, ERC and socialist PSC will ask CiU to stop making budget cuts.

From a Political Perspective From an Economic Perspective




� Mr Mas and CiU may wait four years before calling a secessionist referendum, meaning after the next general election. Yet even if Spain’s Socialists then oust Mr Rajoy, their position on Catalonia is unclear. This means further political uncertainty.

� Tensions between Catalonia and Madrid could intensify because Mr. Rajoy (PP) may be less inclined to offer a weakened Mr. Mas (CiU) the kind of fiscal concessions that would have helped defuse the separatist challenge.

Conclusion: Is Spain Going to Break Up as a State?

At present this appears unlikely. But, as November, 25th result shows, pro-independence pressures are developing rapidly in Catalonia, the most powerful of Spain’s 17 autonomous regions. It is the most serious test of the decentralized Spanish system of government since the nation returned to democracy in the late 1970s after Franco’s dictatorship. Results on November 25th poll are driving the Catalan political scenario into a mess, creating additional difficulties both for President Artur Mas and President Mariano Rajoy.


Is Catalan Secessionism a Real Risk for Spain? updated 04122012

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