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Spanish Crisis: Catalonia is Drifting Away

Among the many issues that the Spain encounters, (including from rating agencies) the future of Catalonia is perhaps the hottest topic that could impact a decision on a bailout.

The Spanish government’s dealing with this rich and recently more separatist region hasn’t been optimal. Update.

Catalonia’s national day (“Diada”) on September 11th attracted an audience of between half a million to 2 million people, in a region of around 7.5 million. No matter who you believe, the call for independence was loud and clear.

Catalonia’s president Artur Mas, upped his rhetoric which was quite unclear. He went to Madrid to meet Rajoy, and received a clear NO for a better fiscal pact. Catalans currently pay taxes to the Spanish government, which redistributes the money. Not all the money that Catalans pay returns to the region. While the exact fiscal deficit figures are disputed, it is clear that if Catalonia would have collected its own taxes and paid Spain only for the services it receives, it would not have found itself asking for aid from the central government.

The idea of collecting the taxes isn’t a precedent: this is the deal that the Basque Country and Navarre (also partially Basque) already have. Politicians in the Basque Country also raised the old demands for independence after seeing Catalonia’s awakening. This will be a heated topic in the regional elections there.

Back to Catalonia: When Mas returned to Barcelona after receiving a rejection from Rajoy, thousands awaited him with independence flags. The next move was to bring forward regional elections and to hold them on November 25th – a move that was approved by a vast majority in the Barcelona based parliament.

This way, his ruling CiU party asks for a mandate to go ahead with a referendum for independence, a move that Madrid clearly objects. The Catalan parliament also approved another motion regarding this referendum.

Apart from the Spanish rejection, also the Spanish King called for unity and angered many Catalans. Even worse, scary voices from the past have also been heard: an ex general threatened military intervention to crush Catalan independence. Spain emerged from Franco’s dictatorship and switched to a democratic regime in the late 70s, and democracy is still somewhat fragile.

It is quite surprising that Rajoy didn’t calm down Catalonia’s aspirations by opening the door to endless negotiations for a new fiscal pact. Such negotiations would let time calm down everybody and perhaps he would be able to concede some ground when the economic situation improves.

Taking the time with the bailout allows Spain to raise money in favorable terms so far. Why not apply this policy in internal matters?

This article is part of the October monthly forex outlook. You can download the full report, including the currency technical outlooks and the relative strength index by joining the newsletter in the form below.

Yohay Elam

Yohay Elam

Yohay Elam: Founder, Writer and Editor I have been into forex trading for over 5 years, and I share the experience that I have and the knowledge that I've accumulated. After taking a short course about forex. Like many forex traders, I've earned a significant share of my knowledge the hard way. Macroeconomics, the impact of news on the ever-moving currency markets and trading psychology have always fascinated me. Before founding Forex Crunch, I've worked as a programmer in various hi-tech companies. I have a B. Sc. in Computer Science from Ben Gurion University. Given this background, forex software has a relatively bigger share in the posts.