The Catalan conundrum

Mon, Sep 17, 2012, 01:00

WHEN MARIANO Rajoy’s conservative People’s Party won Spain’s general election last November, there were many who said the 56-year-old was being handed a poisoned chalice. The main challenge facing him was to save his country from going down the same route as Ireland, Greece and Portugal, and being bailed out by Europe, and he has yet to prove that this challenge is surmountable.

At the end of August, Rajoy had a working lunch with European Council president Herman van Rompuy, after which the Spanish prime minister insisted his country was not negotiating a sovereign bailout. However, speculation has been rife he will not be able to avoid such a scenario.

As if Rajoy didn’t have enough on his plate, the country’s most indebted region is putting the squeeze on Madrid. Last month, Catalonia announced it needed a

€5 billion bailout from the Spanish state in order to meet its debt obligations. The financial difficulties of the northeastern region has fuelled political impetus for increased fiscal autonomy.

Some commentators have likened the pressure being applied by Catalan premier Artur Mas on Rajoy to blackmail – if central government doesn’t cut Catalonia a favourable deal (essentially, the region wants €5 billion with no strings attached), they will push for independence.

This showdown may reach a head on Thursday when Mas meets Rajoy in Madrid to discuss financing needs. It will be interesting to see whether the Catalan tail succeeds in wagging the dog.