A new battle for Rajoy

The specter of Catalan independence could not have stirred at a worse time for Prime Minister Mariano Rajoy, this time being prompted by the eternal argument over how much the region contributes in taxes to the central government, and how much it receives in return in terms of services rendered. Catalan regional premier Artur Mas, once an ally of Mariano Rajoy, has called early elections, and depending on their outcome, a referendum on independence. The belief among many in Catalonia is that the region's economy would emerge from recession more quickly if it were freed from the shackles of Spain.

This might have been true in 2005, and it may again be so in, say, 15 years' time. But right now, the international markets have classified Catalan regional government bonds as junk; it cannot raise money on the international markets; investors are staying away; and it has had to ask the central government for money to pay its debts.

The majority of financial experts and analysts agree that independence is not a viable option for the moment.

If Catalonia became independent overnight, it would wake up bankrupt. Its fiscal deficit is equivalent to eight percent of GDP.

Right now, Catalonia is the third-most-indebted region in Spain. Based on its population, 16 percent of the national total, and its share of national GDP, at 18 percent, it would take on around 100 billion euros of Spain's total public debt of 617.7 billion euros.

To that figure should be added five billion euros owed by its town halls, along with a few more billion as its proportion of the 34-billion-euro debt owed by public companies such as rail firm RENFE, and so on. In total, a hypothetical new state would start off its life with accumulated debts of around 150 billion euros.

"Catalonia would not have the resources to pay its debts for at least two years, and would go bankrupt, unless it were able to get a bailout, which would be difficult," says Professor Juan José Rubio, a former head of the Institute of Fiscal Studies.

Josep Oliver of the Autónoma University of Barcelona says that the region's debt would amount to 80 percent of GDP at present, but sees self-rule as viable in the longer term: "Independence right now is unimaginable. But in a few years it could be done. What's more, as an independent state its ability to generate resources would improve, which would make it easier for it to get money on the international markets."

Xavier Cuadras, who, along with Modest Guinjoan, is the author of a new study on the economic viability of an independent Catalonia, argues that the region's debt would put off investors from lending to the Catalan government. But he says that there are other options for raising money, such as issuing bonds or borrowing from the banks.

"But that would require some very astute political management," he says.

José Carlos Díez, the chief economist at consultancy Intermoney, highlights the problems facing the region's banks in separating from the rest of Spain. Only two Catalan banks remain solvent - Sabadell and La Caixa - but they are dependent on money deposited by customers throughout the rest of Spain.

"If Catalonia became an independent state, huge numbers of Spaniards would close their accounts and switch their mortgage to banks in Spain itself. If a company loses 30 percent of its customers, it loses money. But if a bank loses 30 percent of its customers it folds," Díez points out.

Catalonia's foreign debt has never been calculated, but it would inflate rapidly. Díez notes that this would mean bankruptcy, which in turn would wipe out businesses on a massive scale.

"Seven years ago, independence would have been bad for Spain, and it would have been difficult for Catalonia, but doable. Right now, in economic terms, it is out of the question," he says.

The resolution passed in the Catalan regional parliament last week backing a referendum on independence was not just about relations between Catalonia and the rest of Spain. The bill also calls on the regional government and the parliament to support the process "through dialogue with the international community and the European Union."

For regional premier Artur Mas and his pro-independence supporters, international support for self-rule is essential. For the moment, though, he has largely failed in this regard, and the region's neighbors in Europe, as well as in Latin America, seem far more concerned with Spain as a whole overcoming its current economic woes.

In Germany, which holds the key to Spain's recovery, the government of Angela Merkel describes Catalan independence initiatives as "an internal matter." Sources close to the chancellor say that nobody in her inner circle believes that Spain breaking up is the solution to anybody's problems. The same sources say that Berlin has no direct contact with any of Spain's regional leaders, and that it just talks to the central government. They add that Berlin's only concern is that Spain should continue to implement austerity measures and to cut back on public spending.

One country that is keeping an eye on the Catalan independence issue is the United Kingdom. The Scottish government, led by pro-independence Alex Salmond, has announced that it will be organizing a referendum on independence there in 2014. The government of David Cameron has had little option but to accept the initiative, insisting only that it be held as soon as possible and according to rules imposed by Westminster. But while the British media has given ample coverage to the issue of Catalan independence, describing it as a historic problem that has been exacerbated by the depression, neither Edinburgh nor London have made any official comment on the question. "This is a matter for the Spanish government. We have nothing to say about it," was all that a spokesman at the Foreign Office would say.

"It is not our policy to comment on internal matters and we prefer not to discuss the Catalan question," echoed Salmond.

In Italy, a country where regionalism is alive and well 150 years after unification, the government also prefers not to discuss the question of Catalan independence. "It is better not to discuss the problems that a country might face at some point in the future. We have enough on our plate at the moment," said a spokesman. Nevertheless, Italians are watching events in Spain with a mixture of surprise and relief. Surprise because until recently Spain was seen as a country that had managed to overcome in record time the issues of the past, in many ways overtaking Italy. Relief because the political turmoil in Spain has taken the spotlight off Italy. Last week Italian newspapers ran headlines reading: "Spain breaks up due to the indignant and separatists. Rajoy looks around him and sees only disaster."

Artur Mas' plans for self-rule in Catalonia have been followed by the media in Latin America, albeit to a lesser extent than in Europe. In Mexico, which until recently saw Spain as a bastion of prosperity and order, the protests outside the Congress in Madrid last week took precedence over the march in Barcelona in favor of independence the week before. Historian Enrique Krauze warned in a newspaper article: "The nationalists will lead Catalonia to isolation and cultural impoverishment. Independence would be deadly for Catalonia." Writer Héctor Aguilar Camín said: "Independence would only add to Catalonia's existing problems by creating political uncertainty."