(James Saft is a Reuters columnist. The opinions expressed are
By James Saft
Sept 26 Just when Spain, and the euro zone,
needed it least, along comes the Catalan secession drama to
remind us exactly how many parties, peoples and factions have
the potential to undermine the single currency's salvation.
Not that Catalonia is likely to leave Spain any time soon -
for one thing the country has no constitutional exit clause -
but the discussion itself has already unsettled markets and is
complicating Spain's potential negotiations for a bailout.
And if you find this one unsettling, just wait; even with
newly strong support from the European Central Bank, the euro
zone has, at best, a long and painful journey ahead to
integration. Catalans favoring independence won't be the last
group to want to radically shift the debate over who pays what
Artur Mas, conservative president of Catalonia, on Tuesday
called elections for November after Spanish Prime Minister
Mariano Rajoy rejected his call for more control over tax
affairs. His CiU party is likely to win an outright majority in
the regional parliament in the election, which he is casting as
a vote over independence, a concept rejected by central
"If we can go ahead with a referendum because the government
authorizes it, it's better. If not, we should do it anyway," Mas
told the regional parliament Wednesday. "This is about Catalonia
being able to exercise its right to self-determination."
Financial markets caught fright on the news, matters not
being helped by it coinciding with violent anti-austerity
protests in Madrid on Wednesday. Spanish shares fell sharply,
the euro itself sagged and Spanish debt widened considerably
against German bonds, indicating disquiet over Spain's ability
to tread what is proving to be a very delicate path to a
Catalonia, heavily industrialized and wealthy, pays in far
more in taxes to central government than it receives in
spending. It is also in desperate need of funds to meet upcoming
bond obligations, and is in the process of negotiating a five
billion euros bailout from a recently set up central fund.
Recent polls show independence from Spain is favored by more
than half of all Catalans, who resent the flow of tax dollars
out of the region. It accounts for about a fifth of all Spanish
economic output, and as a standalone country would be roughly
the size of Austria.
All of this is highly unlikely to end with a new state,
either inside or outside of the euro zone. There is at present
no constitutional mechanism for separation and the EU itself
appears to recoil in horror at the idea. Even if viewed simply
as negotiations over how thinly the butter is spread on whose
bread, the ructions could easily prove very expensive.
HARD TO ASK FOR HELP
Coming now, after the ECB spread a safety net under the euro
with its recent pledge to directly support sovereign bonds, the
fallout has been limited. Had something like this happened at
tenser times earlier this year or last, we could easily have
seen the kind of sovereign and bank debt run which would prove
extremely difficult to control and contain.
Rajoy has been publicly resisting calls, from financiers at
home and from his European partners, for him to move ahead and
request a bailout. He has, instead, been temporizing, hoping to
get his ducks of reform and austerity more or less lined up at
home first, rather than appearing to bend to external wills. He
also may be hoping that Italy asks for help too, which might
allow him to win comparatively better terms.
The Catalan vote makes this task harder in at least two
respects, each of which serves to magnify the other. The
appearance of political disorder at home will only, as we have
seen, pile pressure on Spain in financial markets, something its
would-be helpers in the EU and ECB do not want to see. A very
fragile confidence built up in the wake of the ECB's change of
heart, but not a permanent or very stable one. Secondly, it
makes his negotiations at home over the character and terms of
reform that much more difficult, both in terms of who tells whom
what to do, and how this plays inside and outside of Catalonia.
How this plays out is, of course, impossible to foretell.
The message, instead, is that the task in Europe, both of
weathering the immediate storm and constructing a convincing
stronger union, is not just almost unbelievably complex at the
European level, but also subject to quite unpredictable
differences internally within what would appear to be highly
That argues for, at the very least, periodic bouts of worry.
Expect a lot more volatility in European financial markets than
we've enjoyed in recent weeks, volatility that just could extend
to global markets.
(Editing by James Dalgleish)
(At the time of publication, Reuters columnist James Saft did
not own any direct investments in securities mentioned in this
article. He may be an owner indirectly as an investor in a fund.
For previous columns by James Saft, click on