The governor of the Spanish central bank has weighed in on the question of Catalan independence, threatening the region with expulsion from the eurozone if it declares independence. La Tribune reports.
Luis Maria Linde said that if Catalonia broke away from Spain, the new state would “automatically be excluded from the eurozone, because this would also imply an exit from the European Union”.
The banker went further, highlighting the scale of the threat that a Catalonian exit from the eurozone, or ‘Catexit’, represents to the region. “The Catalan banks would no longer be able to access refinancing from the European Central Bank (ECB),” he explained. If this were the case, Catalonia would have to print its own currency, which would undoubtedly lose value against the euro. “Accounts could then be frozen, as happened in Latin America and Greece,” he added.
Using a trusted recipe
Six days before the Catalan regional elections, which many see as a substitute for an independence referendum, the Bank of Spain – and by extension the ECB – have recycled the tactics that served them so well in Greece, Cyprus and Ireland to make voters and governments give in to the will of the ECB.
Provoking fear among voters of making a ‘wrong choice’ that could lead to economic chaos seems to have become the eurozone’s preferred means of holding itself together. What is new about this case is that the question is no longer purely economic, but political.
In making this threat to Catalan voters, the Bank of Spain has openly abandoned its position of political neutrality. Its declaration followed announcements by the big Spanish banks, who threatened to pull out of Catalonia if the region became independent, and was forced to leave the European Union.
Sowing panic to win elections
Next Sunday’s election (27 September) has Madrid worried. The capital’s response has been to use fear and threats to try and weaken the separatist movement, a technique that was successfully employed by London in the Scottish independence referendum of 18 September 2014.
In Catalonia, the polls suggest a separatist majority, split between the extreme left CUP and Junts pel Sí.
But Luis Maria Linde’s threats may turn out to be nothing but a bluff, like the ECB’s Grexit threats. The Junts pel Sí party does not in fact plan to make a unilateral declaration of independence unless Madrid uses military force against Catalonia. Their programme is one of negotiated separation sanctioned by a referendum, something Madrid has always refused.
Yet the separatists hope to integrate Europe into the independence process. Junts pel Sí is a pro-European party campaigning for Catalonia to stay in the eurozone and the EU. Financial and monetary aspects are included in their plans for a negotiated separation. This is logical, because despite what Luis Maria Linde may say, the EU treaties make no provisions for secession.
The risks for the eurozone
A chaotic ‘Catexit’ provoked by an inflexible ECB is, in reality, no more likely than was a Grexit. Catalonia represents 17% of Spain’s GDP, the fifth economy of the eurozone. The collapse of its economy would create a shock wave that would threaten the rest of the monetary union. Especially since, unlike Greece, Catalonia is both a very open economy and the port of transit for the majority of Spanish exports.
Expelling Catalonia forcibly from the eurozone would be a dangerous game to play, and it could also be interpreted as a precedent for those that want to leave the eurozone. It may not be such a firm precedent as a Grexit would have been, but it would seriously undermine the idea that the euro is ‘irreversible’ and would deprive the Catalan citizens of their currency. What is more, the legal foundation of such an expulsion would be highly questionable, as it would be an entirely new situation.
But the Catalan government would not be completely without the means to retaliate. It could respond by establishing capital controls and make use of foreign currency reserves.
Catalonia’s economy would suffer heavily, but it would also severely damage many Spanish and foreign companies that operate in the region. The ECB would have to decide whether it is worth taking this risk at a time when the global economy is struggling to recover.
Catalonia could also refuse to pay its share of the Spanish national debt, leaving Spain with an impossible burden and calling into question the solvency of the country. So the threat of expulsion does not seem very credible.
It looks like Luis Maria Linde is trying to use his position as a member of the ECB’s Governing Council to give his threats the same impact as those previously made to other countries.
A dangerous game
But the Catalans seem prepared to resist. The more Madrid flexes its muscles (earlier this month the minister of defence had raised the possibility of using armed force against Catalonia), the better the separatists perform in the polls. A poll published this weekend on the Catalan television station 8TV found that 58.2% of Catalans were “prepared to accept the fact that an independent Catalonia may be expelled from the EU”.
The governors of the eurozone have taken a big risk, firstly by strengthening a separatist cause, but also by alienating a largely pro-European movement that, if made to choose, would put its own independence over its EU membership. Time will tell if the Bank of Spain’s threat will be taken up by the ECB in the case of a separatist victory. This would pose serious questions about the institution’s independence.
This article was also published by EURACTIV France.