After Spain nixes new fiscal deal, Catalonia considers independence push

Spain's prime minister refused to renegotiate a fiscal deal governing the Catalonian region's payments to Madrid, arguing that all regional governments will then follow suit.

As if Spain didn’t have enough to contend with amid a dire economic crisis, record unemployment, social turmoil, and fading diplomatic clout, it’s now facing the destabilizing threat of breaking apart.

Catalonia, the second most-powerful hub in the country after Madrid and home to the industrial capital of Barcelona, has embarked on a path to secede from Spain. But many see this push as a dangerous move at a time when a weakened Madrid is struggling to meet the needs of all of Spain, particularly its poorer regions.

“It didn’t go well,” said Artur Mas, president of the regional government of Catalonia, following a closely watched meeting Thursday in Madrid with Spanish Prime Minister Mariano Rajoy to discuss renegotiating a fiscal agreement as a precursor to seeking independence.

“Rajoy’s answer was no, that there is no margin, and we can’t knock our head against the wall,” Mr. Mas said. After giving up on negotiations, Mas suggested Catalonia will now move its regional elections ahead for sometime this year in a risky attempt to secure popular support for an independence drive.

The Catalonian challenge has opened a Pandora’s box, and nobody knows how or when it will end. Some believe it’s all just part of a decades-old game to extract more self-rule concessions from the central government, specifically full “fiscal sovereignty.”

“This is a dead-end street,” says Emilio Campmany, a history and law professor in the Universidad Complutense de Madrid and part of the Strategic Studies Group, a Madrid-based think tank. “The biggest obstacle for Catalonia is not political, but a question of money. The government would not be able to meet its obligations without Catalonia.”

The government of Catalonia in August formally requested €5 billion from the central government regional rescue fund to meet its obligations for the remainder of the year. A pending question is how this request will fit into broader sovereignty talks.

Others, though, warn this is the real thing and that Spain’s territorial integrity is in danger. Indeed, in a very rare incursion into politics, unheard-of since a failed coup in 1981, King Juan Carlos, without directly naming Catalonia, severely scolded political leaders for taking advantage of the country’s economic and diplomatic woes to advance their own agenda.

“This is decisive moment for the future of Europe and Spain. Under these circumstances, the worst thing we can do is to divide our strength, encourage dissensions, follow pipe dreams, and deepen wounds,” the king said in an open letter published Tuesday.

The biggest fear is that if the central government yields to Catalonia now, all regional governments will demand the same treatment. “The question is if other regions would demand the same,” says Carlos Ruíz Miguel, a constitutional law professor in Santiago de Compostela University and an expert on Spain’s decentralization. “A unilateral solution for Catalonia would be unconstitutional.”

Already most candidates in the regional Basque elections planned for October have said they don’t support seeking independence just yet, but the top contender suggested he intends to renegotiate for more self-rule.

Long-contained frustration with the central government resurfaced with the economic crisis, though, and nationalism has rekindled among the population.

Mas was emboldened after a pro-independence protest on Sept. 11 attracted hundreds of thousands of people to Barcelona, demanding “freedom.” The turnout was unexpected, even by the most optimistic.

The Catalonian leader seized on the momentum to declare the region’s intentions to move toward independence. “We have to ready ourselves. We have to convince them with arguments.” Mas cited three prerequisites for “victory”: “firm willingness,” “a sufficiently large majority,” and “the ability to resist.”

A disenfranchised history

Spain already has one of the world’s most decentralized national governments. Independence aspirations are centuries old and not limited to Catalonia. Big shares of voters in the Basque Country, and to a lesser extent Galicia, have consistently supported sovereignty as a long-term goal.

Once democracy was reestablished after a four-decade dictatorship that ended in 1976, the leaders of a broken Spain agreed to defer their ambitions and instead embarked in a long-term devolution process to increase regional self-rule.

Navarre and the Basque Country, for example, have historically controlled their fiscal affairs and only negotiate how much to compensate the central government for shared expenses – as Catalonia was pressing for.

The three regions already have their own independent police forces. And all the 17 regions and two city-states have their own parliament and executive, with varying degrees of control over health care and education.

The economic catalyst

Spain’s gross national product in 2012 and 2013 is expected to further contract, and unemployment, already the highest of any rich nation, is expected to top 25 percent and to become increasingly hard to reduce, according to the Organization for Economic Cooperation and Development.

Europe is also pressuring Spain to request a bailout like Greece, Portugal, and Ireland already have, but the government is trying to avoid it as it would likely carry even more unpopular austerity on top of the draconian measures it has already passed, including tax hikes, public spending cuts, and economic reforms that have increased poverty and unemployment.

If the central government were to cede control of the tax revenue from Catalonia, it wouldn’t have the economic muscle to distribute spending in the poorer regions of Spain.

With regional elections in Catalonia and the Basque Country later this year, and polls consistently showing a victory in both regions by nationalistic parties, the political map could change, and it’s now up to Mr. Rajoy to decide how to face the unprecedented threat to Spain’s territorial integrity.

“I don’t know what the government would do if Catalonians declare a unilateral independence,” Dr. Campmany says. “The government has little power to enforce the Constitution, other than the Army. My impression is that this is the beginning of a very long process. Most Catalonians want independence, but it seems to me their leaders just want more concessions.”

But if Catalonia insists on independence, the consequences are uncertain. “It’s not that they are using the independence issue to secure a fiscal pact. It’s the other way around,” Dr. Ruiz says. “I don’t rule out a civil war, or a balkanization of Spain. In Spain, nobody wants to even consider this, but I think it’s tremendously concerning.”