The Greek debt issue will be resolved for the moment–as we have maintained for months. What is 31 BILLION EUROS among friends? Now that the Catalan independence parties have won a resounding victory in the Spanish region of Catalonia, the political waters of Europe have become murkier. It will be doubtful that Catalonia will actually secede from the Spanish polity but the mere threat will mean that Brussels will have to become more involved in pushing billions of more euros into the Spanish coffers. The Catalans are angry because they send far more euros to Madrid than they receive back in Barcelona. According to the most recent data from 2009, Catalonia had sent 16.4 billion euros more to the Spanish Treasury than flowed back to the region.
As the recession deepens and the need for local funds increases, the animosity of the Catalans toward the rest of Spain grows. Catalonia is presently cut off from borrowing in the debt markets because it has owes so much to creditors. So the issue is that the ability to keep the funds in Barcelona would mean that Catalonia would have a strong enough balance sheet to access the capital markets without any involvement from Madrid. While Catalonia’s debt rating is very weak, its economic power within the Spanish economy is very strong. The Catalan region represents 19% of the Spanish economy and much of its industrial might. As a region it also has close economic ties to France, Germany, Italy and the rest of Northern Europe. The issue for Spain will be how much money will be needed to make it a bad proposition for Catalonia to leave the Spanish Republic. The last thing Brussels and the ECB needs is for the issue of Spanish devolution to raise the cost of financing the bailouts of the peripheries. Two-hundred-fifty years ago it was the War of Spanish Succession. Today is the possible issue of some type of Spanish secession: History, first as tragedy, then as farce.