The Guest Blog

Guest post by Luis Pablo, PhD student in Financial Economics.

When Spanish President Rajoy announced in October that he would start the legal procedures to remove the Catalan government and call for regional elections, many people, especially in Catalonia, breathed a sigh of relief: the trip to nowhere initiated a few years ago by Catalan secessionists had been put to an end. The political turmoil, the naïve thought, would give way to a new time of political and economic stability.

Unfortunately, time has proved optimists wrong. The recent elections in Catalonia have revealed that the Catalan society remains openly polarized between those who wish to carry on at all costs with the plans to establish a Catalan republic, and those who defend, to a larger or lesser extent, the status quo. The secessionists, led by on-the-run ex-President Carles Puigdemont, succeeded to maintain a large majority in the parliament, which, in the eyes of their voters, legitimizes the unilateral strategy towards independence pursued over the last years.

Despite the clear victory of secession supporters, the political situation is more complex than meets the eye. Should pro-independence parties reach an agreement to form a new government, they will have no choice but to face several challenges in the following months. For the first time since the arrival of democracy in 1978, a non-nationalist party won the election. Ciudadanos, a party founded in 2005 to oppose the cultural hegemony of nationalist governments in Catalonia, won the election both in votes and representatives.

Although irrelevant from a pragmatic point of view (they don’t have a sufficient majority to form a government), this symbolic victory sends a signal to the international community, namely: independence doesn’t have the support of an overwhelming majority in Catalonia. Rather, the Catalan society is more divided than ever.

In addition, Puigdemont, the secessionist presidential candidate, fled to Belgium three months ago to avoid arrest over charges of insubordination, misappropriation of public funds, sedition and rebellion in relation to the illegal referendum and subsequent declaration of independence undertaken in the Catalan parliament. Were he to return to Catalonia to be elected President, he would be immediately seized by police and brought to justice.

Contrary to what one might think, this shouldn’t pose a problem for pro-independence parties, which could utilize this issue in favor of their cause. The biggest loser will be the Spanish government, which will likely have to endure a new wave of demonstrations and political instability should Puigdemont end up in prison.

In any case, Puigdemont has no intention to become a martyr by enduring imprisonment, at least for the moment. His party is considering making Puigdemont president without him being present in the Parliament of Catalonia during the vote. Although this would likely represent a violation of the Parliament’s regulation, this seems the only opportunity for Puigdemont to be elected Catalonia’s President without ending up in prison.

Despite this turbulent political landscape, the greatest challenge a hypothetical new Catalan government will encounter is the dire economic situation in which Catalonia is currently immersed due to the irresponsibility of pro-independence politicians. Political instability has resulted in nearly 3,000 companies moving their headquarters outside Catalonia, including six firms from the IBEX 35, the main stock index in Spain.

The political turmoil has also deterred investors from undertaking new investments in Catalonia. Between January and September, foreign investments decreased by 37%, 34 percent points more than in the rest of the country. When put into perspective, the panorama is equally daunting. If we compare these numbers with an average of the last five years, foreign investments fell by 15% during the same period as opposed to a 14% increase in Spain.

Regrettably, prospects regarding the Catalan economy are not much better. Catalonia’s expected growth has slowed down considerably. According to the head of the Independent Authority for Fiscal Responsibility, an independent body for fiscal control, GDP in the last quarter of 2017 will increase by only 0.5%, nearly half of what had been previously estimated.

In 2018, things will not be different. Despite being one of the wealthiest regions, Catalonia will experiment the lowest growth rate in Spain. BBVA research estimates that Catalonia’s economy will grow by 2.1% in 2018, far from Madrid’s 2.7% or Basque Country’s expected growth 2.9%.

Needless to say, these are only estimates. If the political landscape stabilized and confidence gradually returned to the Catalan economy, the damage could be limited. Nonetheless, political turmoil has already impacted Catalonia negatively, and nothing prevents the situation from deteriorating even further in the upcoming months

Catalonia has been stuck in an endless conflict for years. As Bill Murray in Groundhog’s Day, Catalans seem to be reliving the same moment over and over again. The difference is that, in this case, they are trapped in a time loop in which reality continues to worsen slowly but steadily. Will Catalonia be able to exit this loop? Only time will tell.

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