Is Catalan play for power canny or sign of panic?

Fri, Jul 27, 2012, 01:00

Spain’s northeastern region has always sought to assert its independent identity. However, the clarity behind its recent move to seek a localised ‘bailout’ from Madrid while being fiscally separate do not ring true, writes PADDY WOODWORTH

IN THE Catalan language, the word seny translates as a particularly sharp kind of canniness, especially in financial affairs, which many Catalans see as part of their national character.

But it is far from clear whether the high-stakes game Catalonia’s autonomous government is playing with the Spanish government in Madrid is a remarkable demonstration of this quality, or simply an exhibition of panic and confusion.

On Tuesday, the Catalan economics minister, Andreu Mas-Colell, appeared to tell the BBC clearly that Catalonia, the northeastern region whose capital is Barcelona, had decided to seek a bailout from Madrid. The Spanish government had announced it would set up an €18 billion liquidity fund to assist autonomous governments in extreme difficulties.

Following news over the weekend that Valencia and Murcia had decided to apply to this fund, Mas-Colell’s statement briefly sent Spanish bond yields to record highs on Wednesday morning. It raised the spectre of a series of bailouts within a bailout.

How could a central government, itself clearly in need of urgent financial injections from the EU, survive a run of demands from autonomous governments whose levels of indebtedness have never been clearly assessed?

The short-term debt-repayment needs of Catalonia alone are understood to stand at almost one-third of the entire liquidity fund.

Later on Wednesday, however, Catalan first minister Arturo Mas told the autonomous parliament that no bailout request had been formally filed, and that none would be, “unless things get much worse”. But he also insisted that, if Catalonia did apply to the liquidity fund, it would not constitute a bailout because, effectively, Madrid owed the region the money in any case.

He also claimed that no further austerity conditions could be demanded by Madrid in return for such assistance, were he to ask for it. The Spanish government strongly argues otherwise.

There is a curious parallel between Catalonia’s position on the liquidity fund, and Madrid’s position on EU support for the Spanish banking sector. Both insist that funds from these sources are simply “lines of credit” with no political conditions attached, and certainly not bailouts. In both cases, national pride is deeply involved, and politics becomes semantics.

Ironically, Mas was speaking yesterday to urge the Catalan parliament to vote in favour of a controversial measure to give Catalonia the right to raise and distribute all its own taxes. This “fiscal pact” would satisfy a long-standing Catalan nationalist desire to have parity with the Basques, who already enjoy this remarkable level of financial self-government.

Mas is a usually moderate Catalan nationalist, who recently threatened to organise a plebiscite on independence in response to the crisis. He told parliament that this new fiscal arrangement would wipe out Catalonia’s indebtedness at a stroke, though he did not specify how this would happen.

Parliament approved the measure late yesterday afternoon, though it still has to be negotiated with Madrid.

There is some justification in the Catalan nationalist complaint that Madrid has failed to transfer the funds due to the region under the existing autonomy arrangements.

But it seems far-fetched to suggest that the proposed new pact, in the unlikely event of its being accepted by the conservative Spanish government, would have such a dramatic impact on Catalan finances.

Catalonia has always had one of the most dynamic and prosperous economies in modern Spain. But its recent property and banking crises have been very similar to those in other regions.

Then, as the recession bit, declining tax revenues went completely out of phase with rising public sector costs, especially in the health services, driven by an ageing population.

The current Catalan government, unlike many of its counterparts in Spain’s 17 autonomous regions, has not hesitated to implement a series of cutbacks, many of them earlier and harsher than those now belatedly undertaken by Madrid. It has closed medical centres, reduced school hours, raised taxes and slashed public sector pay.

But the outcome has been to deepen the cycle of recession, not to escape from it.

The Catalan government’s position now seems bizarrely contradictory, in demanding full fiscal powers and sounding off about independence, while conceding that it is reliant on Spain for survival, since it cannot raise money on the markets.

“We have no bank but the Spanish government today,” Mas-Collel admitted to the BBC on Tuesday.

Whether these contradictions are part of a canny plan, or indicate a government overwhelmed by the speed of drastic events, remains to be seen.

Sign In

Forgot Password?

Sign Up

The name that will appear beside your comments.

Have an account? Sign In

Forgot Password?

Please enter your email address so we can send you a link to reset your password.

Sign In or Sign Up

Thank you

You should receive instructions for resetting your password. When you have reset your password, you can Sign In.

Hello, .

Please choose a screen name. This name will appear beside any comments you post. Your screen name should follow the standards set out in our community standards.

Thank you for registering. Please check your email to verify your account.

We reserve the right to remove any content at any time from this Community, including without limitation if it violates the Community Standards. We ask that you report content that you in good faith believe violates the above rules by clicking the Flag link next to the offending comment or by filling out this form. New comments are only accepted for 3 days from the date of publication.