Catalonia: First Signs of a Return to Reason?

Madrid apologises for the excessive use of police force during the Catalan referendum. Hundreds of thousands of Spaniards take to the streets to demand a dialogue. First cracks appear between the Catalan nationalists.

The news flow over the last few days offers some hope that the conflict about Catalonia can be defused within a few weeks. Unfortunately, the bitter standoff between the two major players in the drama still continues.

Spain’s prime minister Mariano Rajoy and the Catalan regional leader Carles Puigdemont both took an uncompromising stance in media interviews over the weekend. It may first get worse before it gets better.

Two big Catalan miscalculations

By and large, the near-term outcome seems clear, in my view: the Catalan regional government will have to back down.

The reason for this assessment is that, in calling a referendum that violates the Spanish constitution for a cause backed by only half of the Catalan population, the authorities in Barcelona have miscalculated in two major ways:

1. The Catalan supporters of independence are mostly ardent pro-Europeans, like the supporters of the Scottish SNP.

However, their hope that the EU would intervene on their behalf was always misplaced. The EU is essentially a club of its member states, not a club of regions or other entities within the member states.

2. Barcelona has underestimated its economic vulnerability.

In theory, an independent Catalunya could be a viable country within the EU and the euro after an amicable divorce. It is among the most attractive and dynamic regions of Europe.

However, a prolonged standoff during a contested divorce could be an economic disaster for the region. For practical purposes, Catalonia cannot become independent against Madrid.

Catalan businesses vote – with their feet

Last week’s decision of the top two Catalan banks to shift their headquarters to other parts of Spain is just a foretaste of the calamities that could befall Barcelona if it continues to defy the Spanish constitution.

That Madrid may suspend Catalonia’s autonomy according to Article 155 of the Spanish constitution may only be part of what lies ahead.

Just imagine what might happen to public services in Catalonia if Madrid were to order banks to freeze the accounts of the Catalan regional government and all other public institutions in the region that do not abide by the Spanish constitution.

An implicit risk that Spain might withdraw lender-of-last-resort protection from any bank that does not cooperate. Such a move, technical as it sounds, may hit the region harder than any use of the national police.

While the left-wing nationalists from the CUP may not care and even relish an escalating confrontation, most pro-independence forces in Catalonia come from the moderate center-right in economic terms.

As much as they would like to be independent, most of them probably do not want their region – or their own businesses – to go bust in the process.

The Catalan regional parliament may first declare independence by a wafer-thin majority (possibly on Tuesday evening) before the Catalan side fractures eventually. Sadly, an ultimately futile declaration of independence would only escalate tensions without contributing to a viable solution.

Using the big stick?

For the long-term outlook, the real question is whether or not Madrid tries to crush the Catalan pro-independence forces before it starts a dialogue – or starts to talk soon.

A hard line from Madrid would probably prevail near-term. It would carry two major risks, though:

First, the resulting bitterness may strengthen the radical Catalan parties over time even if the Catalan pro-independence forces lose now.

Second, it could undermine Rajoy’s minority government in Madrid. Rajoy may need the support of the Basque nationalists to pass a budget and govern effectively.

Conclusion

In a best-case scenario, Madrid and Barcelona would soon agree to revive the autonomy deal that foundered in the constitutional court in 2010.

With some amendments to take care of the court’s objections, the majority of Spaniards, including the Catalans, would probably approve such a deal on enhanced autonomy.