Expert Commentary

Catalonia Strife Could Take Economic Toll, Hurting Nationalist Cause

Jacob Funk Kirkegaard
Senior Fellow, Peterson Institute for International Economics

Over the weekend, Spanish Prime Minister Mariano Rajoy responded to the independence referendum, which the Catalonian government held on October 1, with an announcement that his government would invoke Article 155 to depose the current regional government and impose direct rule until new elections can be held in six months. The Spanish senate will vote on these measure this Friday, and today Catalan President Carles Puigdemont will give his response to Rajoy at a Catalonian parliamentary session. The Cipher Brief’s Fritz Lodge spoke with Jacob Kirkegaard, Senior Fellow at the Peterson Institute of International Economics, about Rajoy’s strategy to find a new government he can negotiate with in Catalonia.

The Cipher Brief: How has the Spanish government’s decision to invoke Article 155 of the Constitution and begin the process towards imposing direct rule accelerated the Catalan crisis and what comes next?

Jacob Kirkegaard: It is not surprising, but it has accelerated the crisis. I think the decision did also surprise some in Catalonia by demonstrating that the government was willing to use the full force of the Spanish Constitution. Article 155 has never been invoked before, so this is constitutionally new territory.

Where are we now? Basically, the deal among the three main parties in Spain – the PPP, Ciudadanos, and the Socialists – is that we will invoke 155, and then, if need be, we will dismiss the regional government of Catalonia within six months, and presumably also within those six months launch a new constitutional reform process in Spain with the intent of meeting some of the more moderate demands of the Catalan nationalists, so that in this new election process, there is a political alternative to confrontation. Namely, this constitutional reform push.

If the Spanish government doesn’t do that, then of course you run the risk of having another nationalist majority elected in Catalonia, which will undoubtedly be more radicalized than even the current government. Arguably this has been the main fault of the Spanish government; they now need to propose a political solution to this nationalist issue, which has been there for many years.

In my opinion, the independence issue has been distorted by a number of Catalan governments in the years since the financial crisis, but it’s not going away, and unfortunately, the Spanish government and Prime Minister Rajoy were not willing to discuss this issue in a serious way until very recently. Now they have no choice, in my opinion.

TCB: How will the Catalonian government react?

The real question now is, what will the current Catalan government do? Will it just sit back and resign itself to being dismissed by the central government? Maybe, but I doubt it. I think they are more likely to instigate some sort of civil disobedience campaign, essentially daring the Spanish government to use coercive force – police action – to implement this Article 155 decision. That could lead to violence or some type of confrontation, which the nationalists may think will benefit them in an upcoming election campaign.

However, I would say that such a strategy will ultimately fail for two reasons. One, it is clear that the Spanish government continues to have the full support of all of the EU. Essentially, there is no chance that the EU will even sit down and listen to the Catalan nationalists. They regard this as an internal issue, and as long as that’s the case, the prospects for the Catalan government of internationalizing the issue is not there. If the EU is not interested in listening to them, nobody else really matters. And a movement of civil disobedience will not change that unless Madrid completely overreacts and uses a very large amount of police violence, which I would regard as almost unthinkable.

The second reason that this is a highly dangerous strategy for the Catalans is that the economic damage to Catalonia itself may be quite substantial. If you have a period of almost daily street demonstrations, civil disobedience in regional administrative offices, etc., you’re going to have more and more businesses leaving or closing – we have already seen the banks leave Catalonia – and tourism would also take a significant hit. Therefore, the regional economy runs the risk of a double whammy from national Spanish and international businesses leaving, and a potentially significant decline in tourism. The combination could potentially create a regional recession that would hurt the overall Spanish economy but much less than it would hurt Catalonia itself.

More importantly, this critically undermines the nationalist Catalan case that Catalonia is the richest part of Spain, which bankrolls the rest of Spain, and therefore that there is a strong economic case for why they would be richer if they go out on their own. Now, the fact that the process the nationalist government is engaging in will ultimately hurt the Catalan economy undermines that argument, and I think it will play into the hands of the Spanish government and moderate political parties in Catalonia.

So, in the long term, a nationalist Catalan strategy of beginning a civil disobedience campaign against the imposition of Article 155 is ultimately doomed to failure.

TCB: Do you think that these economic ramifications will override rising support for independence in reaction to Spanish central government actions?

Kirkegaard: I think they will.

I think that part of the reason the current regional government has accelerated this process towards outright independence is that to a large extent, they have actually failed to make independence a majority cause in Catalonia. They have not credibly shown that there is a clear public majority in favor of this. In fact, the opposite is true.

The government that we currently have in Catalonia is a sort of odd mixture of traditional right wing and very left wing diehard nationalist parties, which really agree on virtually nothing other than they want independence.

Therefore, the regional government has been quite poor at governing other than initiating this process. Certainly, the October 1 independence referendum was in my opinion a complete sham as an election event – partly due to the actions the central government took to block the vote. I think the announced number of voters in favor of independence is completely without credibility, and international observers have verified that this was not a process that had any real democratic legitimacy.

Thus, the Catalonian government’s assertion that they have a mandate to pursue this is wrong.

What all of this points to is that yes, I believe that the likely persistent economic negative impact from this process is going to cause the so-called silent majority to come out and vote for parties, which may be in favor of regional autonomy but are not in favor of outright independence.

TCB: Is there a clear path to walking this back and negotiating a deal between the current governments as they exist, or is Rajoy’s strategy really just to get this government out of power and then deal with the next one?

Kirkegaard: When the Spanish government – not without legal merit – said that the current Catalan government is operating outside the law, this means that they cannot be a negotiating partner almost by definition, because they’re essentially secessionists or rebels at this point. It would not be credible for almost any government in Madrid to sit down and enter into one-on-one negotiations with such a government.

The fact that three out of the four major parties are behind this invocation of Article 155, new elections in Catalonia and a new constitutional process suggests that clearly the strategy here is to squeeze the Catalan economy, get the current government out of power, get a new government and engage that government in a new constitutional process. But such a process will not just be between Catalonia and Madrid, it will be between the central government and all the Spanish provinces. In such a process, it’s highly unlikely that the other provinces are going to be in a particularly generous mood toward Catalonia.

TCB: Last thoughts?

Kirkegaard: It’s hard to miss the similarity between the economic ramifications occurring now in Catalonia and what’s going on in the Brexit negotiations. It highly unlikely that the EU hasn’t noticed what is unfolding in Catalonia and how private businesses react.

The Author is Jacob Funk Kirkegaard

Jacob Funk Kirkegaard is a senior fellow at the Peterson Institute for International Economics. Before joining the Institute, he worked with the Danish Ministry of Defense, the United Nations in Iraq, and in the private financial sector. He is coeditor of Transatlantic Economic Challenges in an Era of Growing Multipolarity (2012), author of The Accelerating Decline in America's High-Skilled Workforce: Implications for Immigration Policy (2007), coauthor of US... Read More

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