Is Catalan Secessionism a Real Risk for Spain? updated 04122012

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As November, 25th result shows, pro-independence pressures are developing rapidly in Catalonia, the most powerful of Spain’s 17 autonomous regions. It is the most serious test of the decentralized Spanish system of government since the nation returned to democracy in the late 1970s after Franco’s dictatorship. Results on November 25th poll are driving the Catalan political scenario into a mess, creating additional difficulties both for President Artur Mas and President Mariano Rajoy.

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Is Catalan Secessionism a Real Risk for Spain? updated 04122012

  1. 1. Is Catalan Secessionism a Real Risk for Spain? (Update, Dec. 4th 2012) Secured Distressed Debt Market in Spain Manuel Guillén i Solà Chief Executive Officer New York, December, 4th 2012 www.mediterraneancapital.com© Mediterranean Capital Management. All Rights Reserved. 1
  2. 2. © Mediterranean Capital Management. All Rights Reserved. 2
  3. 3. Copyright © Todos los derechos reservados. Ninguna parte de este © All rights reserved. No part of this document may be documento puede ser reproducido, almacenado en reproduced, stored in a retrieval system, or transmitted in cualquier sistema de almacenamiento y recuperación de any form or by any means, electronic, mechanical, datos, o transmitido en cualquier forma o por cualquier photocopying, recording or otherwise, without the express medio, electrónico, mecánico, mediante fotocopia, prior permission of Mediterranean Capital Management grabación o cualquier otro, sin el permiso expreso previo S.L. Reference to any information, opinion or other por escrito de Mediterranean Capital Management S.L. material in this document should clearly state Cualquier referencia a cualquier información, opinión o Mediterranean Capital Management as its source. cualquier otro material contenido en el presente documento deberá indicar claramente Mediterranean Capital Management como fuente. Mediterranean Capital Management, S.L. Rosselló 253, 5th Floor, 2nd Suite 08008 Barcelona – Spain Tel. +34 932 553 130 – Fax +34 932 553 109 info@mediterraneancapital.com© Mediterranean Capital Management. All Rights Reserved. 3
  4. 4. Is Catalan Secessionism a Real Risk for Spain? Secured Distressed Debt Market in Spain New York, December, 4th 2012 Is Catalan Secessionism a Real Risk for Spain? Catalonia has a proud tradition of self-rule dating from the Middle Ages. The Catalan revolt against Spanish overlordship in 1640 and the subsequent war, resulting in Catalonia’s defeat, reverberate to this day. Later, in 1714, Catalan troops were again defeated by the Spanish army and Catalonia lost its self-ruling privileges. Franco’s dictatorship was the latest period of political and cultural repression. Main reasons for current increase of secessionism in Catalonia are: First, a fiscal system whereby Catalonia, which has a relatively rich economy the size of Portugal’s, transfers up to 8 per cent of its GDP to Madrid each year; Catalonia vs. Spain Main Economic Indicators Second, the 2010 decision of Spain’s constitutional court to strike down reforms approved by the Catalan and Spanish Catalonia accounts for 18% of the total parliaments in 2006 that significantly enhanced home rule; population of Spain. GDP of Catalonia accounts for 210.150 Third, lack of execution of infrastructure investments bn €, 19% of the Spanish GDP. previously committed with the regional government; and The region generates 26,6% of the total exports of Spain Fourth, reform of the educational system and re- Catalonia transfers to the rest of Spain centralization of political and economic competences in excess of 16.000 M € per year in taxes. already transferred to Catalonia. http://www.idescat.cat/pub/?id=aec&n=356&lang=en Source: Mediterranean Capital Management analysis based on data and opinions from© Mediterranean Capital Management. All Rights Reserved. Financial Times, The Wall Street Journal, The New York Times and Spanish newspapers. 4
  5. 5. Is Catalan Secessionism a Real Risk for Spain? Secured Distressed Debt Market in Spain New York, December, 4th 2012 Is Catalan Secessionism a Real Risk for Spain? Political Scenario Economic Scenario Artur Mas, Catalonia’s president, and his governing Some concerns are raising about the impact that a centre-right Convergència i Unió party (CiU) are secessionist process in Catalonia would be for the nationalists but not an explicitly pro-independence Spanish economy: movement. Loss of 16.000 M € in net tax transfers per year coming from Catalonia to the rest of Spain. Until 2012, CiU’s primary short-term goal was more Loss of 26% of the country’s exports and a higher control over taxes collected in Catalonia, an objective % of the country SME’s vast network. with which Catalan business establishment sympathizes. 21% GDP drop with not equivalent reduction of the national debt. But CiU have not kept up in recent months with the secessionist radicalization of broad sectors of public It’s unclear the impact that an eventual Catalan opinion and, consequently, have begun to harden their independence would have in the rest of the Spanish stance. regions: Basque Country (Euskadi) has strong A resolution to be debated by Catalonia’s parliament nationalist identity and could be the next region to suggests that “fitting Spain and Catalonia together” is “a ask for independence. Esukadi accounts for an path without direction”. additional 6% GDP and 5% population. No major concerns about the rest of the regions. Regional election was celebrated on past November 25th and catalans voted for a large majority of pro- It’s expected that an eventual secessionist process in independence lawmakers, but CiU saw his partys Catalonia would last at least 6 to 8 years. majority reduced by 12 seats. Source: Mediterranean Capital Management analysis based on data and opinions from© Mediterranean Capital Management. All Rights Reserved. Financial Times, The Wall Street Journal, The New York Times and Spanish newspapers. 5
  6. 6. Is Catalan Secessionism a Real Risk for Spain? Secured Distressed Debt Market in Spain New York, December, 4th 2012 Is Catalan Secessionism a Real Risk for Spain? Independent Catalonia… Position of the European Union Would It Be Viable? EU views the secessionism risk without Yes, but it would not be plain sailing. enthusiasm. There are other countries – Belgium, Catalans have a highly developed sense of Cyprus, Italy, Romania, Slovakia and the UK – national identity. where separatist movements and national minorities might draw inspiration from Catalan Even many second-generation Catalans – secession. children of Spanish speakers who moved to Catalonia from other parts of Spain from the 1960s But, in extremis the EU would have little onwards – are attracted by the prospect of choice but to respect an independence independence. process that scrupulously observed international law. The EU was unhappy about But Catalonia’s economy has struggled in Czechoslovakia’s break-up in 1993 but accepted it recent years: its per capita disposable income nonetheless. and labour productivity have grown more slowly than the Spanish average. Source: Mediterranean Capital Management analysis based on data and opinions from© Mediterranean Capital Management. All Rights Reserved. Financial Times, The Wall Street Journal, The New York Times and Spanish newspapers. 6
  7. 7. Is Catalan Secessionism a Real Risk for Spain? Secured Distressed Debt Market in Spain New York, December, 4th 2012 November 25th Regional Election – Results & Consequences Catalans voted for a large majority of pro- independence lawmakers, but CiU saw his partys majority reduced by 12 seats •Conservative nationalist Convergence and Union (CiU) won the election, but with a reduced vote compared to 2010. The party’s support fell 8% to 30.5%, giving it 50 seats in the 135-seat parliament from 62 in 2010. • The Republican Left of Catalonia (ERC) almost doubled its vote to 14% and gained 11 seats to take 21 in total and become the second-largest force in the parliament. • The Socialist Party (PSC) loosed 8 seats to come in on 20. • The right-wing Spanish Popular Party (PP) of Prime Minister Mariano Rajoy, despite picking up one seat, came into the fourth place on 13% and 19 seats. •The left-wing Initiative for Catalonia Greens (ICV) gained 13 seats. • The unionist Citizens’ Party (Cs) gained 9 seats and the radical pro-independence Popular Unity Candidates (CUP) took three seats. Source: Mediterranean Capital Management analysis based on data and opinions from© Mediterranean Capital Management. All Rights Reserved. Financial Times, The Wall Street Journal, The New York Times and Spanish newspapers. 7
  8. 8. Is Catalan Secessionism a Real Risk for Spain? Secured Distressed Debt Market in Spain New York, December, 4th 2012 Consequences: Is Still Catalan Secessionism a Real Risk for Spain? “The result is a mess (…)”; The Economist, December 1st 2012 A mess for the Secessionists… …and also for the Unionists Separatist parties won 74 of the 135 seats in the The People’s Party of Spain’s prime minister, Catalan Parliament. Of that total, however, CiU only Mariano Rajoy, came fourth, gaining just one extra collected 50 seats, down from the 62 seats that they won seat (19), and has lost a valuable ally in Mr. Mas, whom it in 2010. had propped up for his previous two-year term and, in fact, is a reformist and fiscal conservative. Although the polls had suggested that CiU coalition, which is more separatist than ever, would win an absolute majority, Instead of helping Mr Rajoy to reform the economy and it got, unexpectedly, its worst result since 1980. cut public spending, CiU will now lurch into confrontation. It wants more tax money for Catalonia, CiUs new coalition partner is likely to be the Catalan but there is none to spare. ERC will bind it to a Republican Left (ERC). ERC has announced that could promised referendum on independence that Mr Rajoy’s offer support to Mr. Mas, but without joining his government government plans to reject. and as part of a “plural project” toward Catalan sovereignty. ERC has asked to CiU to stop making budget cuts Whereas ERC, which more than doubled its number of in sensitive areas like health and education. Agreeing seats to 21, demands full independence, CiU is split. Its to such fiscal red lines, however, could make it harder for minority component, the Catalan Democratic Union, is Mr. Mas to meet budget deficit targets set by Madrid, as more restrained than Mr Mas, seeking at most a well as reduce a Catalan debt pile that is by far the largest confederation. It also heartily dislikes ERC. in the country — about €42 billion ($54.4 bn), out of a total of €140 billion for Spain’s 17 regions. Source: Mediterranean Capital Management analysis based on data and opinions from© Mediterranean Capital Management. All Rights Reserved. Financial Times, The Wall Street Journal, The New York Times and Spanish newspapers. 8
  9. 9. Is Catalan Secessionism a Real Risk for Spain? Secured Distressed Debt Market in Spain New York, December, 4th 2012 After November 25th Result… What’s Next? From a Political Perspective From an Economic Perspective Spanish Central Government is still facing a clear Until his separatist project put them on a collision separatist challenge, but it now comes from a Catalan course with Central Government, CiU imposed some of leader who first has to form the kind of coalition with the deepest spending cuts among Spain’s regional a left-wing party (probably ERC) that has governments. Now, both coalition alternatives, ERC historically not been a success. and socialist PSC will ask CiU to stop making budget cuts. Mr Mas and CiU may wait four years before calling a secessionist referendum, meaning after Tensions between Catalonia and Madrid could the next general election. Yet even if Spain’s Socialists intensify because Mr. Rajoy (PP) may be less inclined then oust Mr Rajoy, their position on Catalonia is to offer a weakened Mr. Mas (CiU) the kind of fiscal unclear. This means further political uncertainty. concessions that would have helped defuse the separatist challenge. Conclusion: Is Spain Going to Break Up as a State? At present this appears unlikely. But, as November, 25th result shows, pro-independence pressures are developing rapidly in Catalonia, the most powerful of Spain’s 17 autonomous regions. It is the most serious test of the decentralized Spanish system of government since the nation returned to democracy in the late 1970s after Franco’s dictatorship. Results on November 25th poll are driving the Catalan political scenario into a mess, creating additional difficulties both for President Artur Mas and President Mariano Rajoy. Source: Mediterranean Capital Management analysis based on data and opinions from© Mediterranean Capital Management. All Rights Reserved. Financial Times, The Wall Street Journal, The New York Times and Spanish newspapers. 9
  10. 10. © Mediterranean Capital Management. All Rights Reserved. 10

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