Madrid is likely to suspend Catalan autonomy

Analysis

Discussion of scenarios for Catalonia's future is complicated by intense time pressures.

Puigdemont's government is trying to suspend the impact of holding the unauthorised independence vote and claiming a mandate for establishing an independent republic for several weeks, to facilitate mediation and dialogue with Madrid (see SPAIN: Banned vote sets Catalonia on independence path - October 4, 2017).

However, after an ambiguously worded declaration by Puigdemont on October 10, Rajoy gave him until October 16 to clarify the meaning and yesterday another three days to revoke it.

If Puigdemont fails to do so, it is likely that Article 155 of the Spanish constitution will be used to suspend Catalan autonomy, via procedures that would take days rather than weeks.

Most of the independence movement feels that it is clear already that Rajoy will not negotiate with the Catalan government. It thus wants a clearer declaration of independence immediately.

For Spain, the issues are too fundamental to be dealt with without a full-blown constitutional reform process lasting many months. Rajoy has agreed to a parliamentary committee to begin debate in return for Socialist Party support over the suspension of Catalan autonomy.

Scenarios

There are several possible scenarios for Catalonia.

Catalan backtracking

Puigdemont could modify his position in return for the initiation of a constitutional reform process.

The main reason for him to do so would be increasing pressure from financial markets and Spain's central bank, which has already led several Catalan banks and businesses to relocate their headquarters to other parts of Spain since the vote (see SPAIN: Catalan independence would unsettle markets - October 10, 2017).

Puigdemont would lose his parliamentary majority, as the anti-capitalist Popular Unity Candidature would be unwilling to accept a compromise and would withdraw its support for his government, but he could survive through tactical support from other left-wing parties supportive of constitutional reform. In return, he would probably agree to holding early regional elections.

However, Puigdemont's lifelong advocacy of independence and the desire to proceed towards statehood on the part of leaders of the Republican Left of Catalonia, without whom Puigdemont's coalition government would collapse, make this scenario improbable.

Moreover, court appearances now taking place by pro-independence leaders facing prosecution, and pressure on Puigdemont from the Catalan parliament to confirm the declaration of independence, would complicate this route further.

Suspension of regional autonomy

Catalonia has already lost financial and police autonomy; the use of Article 155 would mean a much more general suspension of Catalan powers. The Spanish police presence would be reinforced and the army might be introduced in a support capacity.

Madrid could sooner or later impose early regional elections. While this could lead to a new Catalan government formed by unionist parties such as Citizens or Rajoy's Popular Party (PP), it is likely to lack democratic legitimacy, as pro-independence parties would boycott the vote. Instead, they would promote a campaign of civil disobedience while making international legal appeals against Madrid's actions.

Sections of the pro-independence movement might try to create a counter-institution to the Catalan parliament but any new institution would be vulnerable to closure and the seizure of funds.

Popular support for suspending Catalan autonomy might boost support for the PP in some parts of Spain, but its accommodation agreements with the Basque nationalists could break down and pro-sovereignty claims may receive fresh stimulus in the Euskadi region.

In the short term, Catalan companies might be reassured by a clampdown on the independence initiative, but in the longer term political unrest could lead to a shift in their activity away from the region.

Mediation and compromise

Mediation is unlikely at this point, since only the Catalan government wants it. Many Spaniards would consider it humiliating for Spanish democracy to need external assistance. Moreover, triggering Article 155 would remove the would-be Catalan interlocutors from the scene in any case. The only role for mediation may thus be in the medium-to-long term.

However, the calls for mediation, whether by external bodies or respected figures within Spain, are one reason why the PP has agreed to setting up a parliamentary committee on constitutional reform, aimed at offering some concession to Catalan grievances.

This reform process would have credibility in Catalonia only if it was accompanied by assurances that a new configuration of the state will be seriously considered and if representative Catalan institutions are involved in the discussion, for example through new bilateral communication channels.

However, there would be a strong possibility that efforts around constitutional reform would break down owing to the reluctance of most Spanish parties to agree to privileged arrangements for Catalonia.

Independence

The independence momentum could be resumed this week if Puigdemont concludes that Madrid is dead set against a substantive bilateral dialogue and that the independence movement would be in a stronger position internationally if the Catalan parliament decided to proceed before Article 155 could take effect.

This would be the only way of maintaining the existing pro-independence alliance, even though it would probably bring about a breakaway from a sector of Puigdemont's own Catalan Democratic Party.

Companies that so far have only moved their headquarters would start looking at an operational shift away from Catalonia, affecting GDP and employment. A new Catalan treasury might face a lack of cooperation from taxpayers that want to remain part of Spain.

External investors would be reluctant to proceed with major investments until they were clear about what sort of Catalan republic they were dealing with. Excluded from the euro-area, Catalonia would experience currency instability. There would be at least a short-term decline in tourism (see SPAIN: Anti-tourism protests will pressure regions - September 1, 2017).

Spain would expect an independent Catalonia to take on a large part of the national debt burden and an independent republic would commence life with a large deficit in its social security system (although smaller than that of the rest of Spain).

Moreover, the political momentum of the independence drive could be upset by the result of elections to a constituent assembly. This could bring a change of political direction, creating new interest within Catalonia in continued participation in, or association with, the Spanish state.

For Spain, Catalan separation would mean the loss of 7.5 million citizens and one-fifth of its GDP, as well as territory of strategic importance for its European connections. Some form of accommodation with Catalonia would thus retain significant support both there and in the rest of Spain.