The Catalalunya (Catalonia) Card

According to a column in FT Weekend by David Gardner, sometime this month the annual parade in Barcelona, capital of Catalonia (standard spelling; or Catalunya, the Catalonian spelling, get used to it), honoring the dead from the defeat in 1714 of the Catalans at the end of the War of the Spanish Succession in which they supported the incumbent Hapsburgs against the victorious Borbons, was attended by over a million people calling for Catalan indepence from Spain.  Since then, Catalan Generalitat President, Artur Mas, went to see conservative Spanish PM Rajoy in Madrid trying to negotiate a fiscal agreement that would make Catalunya like the Basque country, able to collect their own taxes.  Currently, Catalunya sends 9% of its GDP to Madrid in revenues net, with that twice the figure in most Eurocountries for rich areas sending funds to poorer regions, with the province also having the largest individual provincial debt (not an issue in the discussion).  The Basques send little.  On top of this, the Spanish constitutional court overturned an agreement passed by the previous Socialist government that granted Catalunya substantial autonomy. Since then the Catalan independence movement has erupted big time.

Mas was long a moderate on all this, supported by the lead author of the 1000 page "Bible" of grad micro theory courses, Andreu Mas-Colell, former Catalan fin minster. They want out.  Mas has now called for a an election in November, with him calling for full independence.  This is viewed as a prelude to a full referendum on the independence issue, even though the Spanish central government says that this would be unconstitutional.  Si, we shall see.

The EU, and particularly its Eurozone part, is unhappy about all this.  It coincides with a broader fiscal and financial crisis in Spain, with bonds now above 6%, triggering all kinds of alarm bells and a renewed slide of the euro after the Bernanke support (Yes, kids, when things look good and the US stock market goes up, the US dollar goes down against the euro).  So, the negotiations by the Spanish central government with the troika of the ECB, IMF, and ESB, with the Germans running the whole show anyway, are seriously muddled by this constitutional crisis, and that is exactly what it is.

This is serious stuff.  I have long been declaring that most of the constantly repeated forecasts of doom and gloom for the euro have been overdone, with US commentators from both the right (mostly), Martin Feldstein and the late Milton Friedman, and the left, most prominently Paul Krugman, with all of these claiming the euro could never get off the ground in the first place and only too eager too trumpet the current problems as showing that they were not total fools in the first place, gag.

Anyway, me the pollyanna on the euro thinks this might be the real banana (the word used to name that which could not be named back in the Ford [or Carter?] administration).  It will take some time to work out, and I can easily see them muddling through yet again; but this one will be much tougher than almost any they have to deal with so far.

Heck, Greece does not involve them trying to beat up on the poor Macedonians or the Turkish Cypriots as they so like to do completely idiotically, given their utter fiscal irresponsibility and outright fraud and lying.  This is more serious.  The Eurozone can dump Greece, but it cannot dump Spain.  That would be the end of the game.