¡Cuidado, Señor Rajoy! The Catalans mean business (and the lesson is for the eurozone)

As we have noted before, whether you sit in Brussels, Berlin or Madrid - and like the idea of more central control - beware regionalism.

The relations between the Spanish central government and Catalonia seem to have reached a new level of tension in the past few days. Somewhat paradoxically, fresh from asking Madrid for a €5 billion bailout, Catalan leaders are starting to talk tough. There have been plenty of hints at independence - although the actual I-word has not been used in public speeches so far.
 
A pro-independence rally also brought Barcelona to a standstill on Tuesday, 11 September - when Catalans celebrate their national day, La Diada. In a perfect illustration of the forces of regionalism, local police said up to 1.5 million attended the rally, while the Guardia Civil (Spain's national police), cited 600,000 as a more realistic number. In any case, there were a lot of Catalans out on the streets.

Fueling the reinvigorated independence mood is Catalan Governor Artur Mas. The "success" of the pro-independence rally, he argued, shows that Catalonia can become "a normal nation in Europe" (during his speech he had only the Catalan and the EU flag behind him, see picture).

Yesterday, the Catalan Governor drew an interesting parallel with the eurozone crisis. He said,

"I think the same is happening between Catalonia and Spain as between northern and southern Europe. Northern Europe has grown tired of southern Europe. And southern Europe has grown tired of northern Europe because of its way of acting. I think that there is mutual fatigue between Catalonia and Spain, too. Catalonia has grown tired of not making progress and Spain [has grown tired] of Catalonia’s way of acting. Catalonia thinks it contributes a lot and is not respected. And Spain thinks Catalonia is always asking and complaining."

He said the time had come for a referendum on Catalonian independence, threatening early elections if Catalonia does not get greater tax collection powers. However, taking his eurozone parallell to its logical end point, he did not say whether the north and south in the eurozone should also opt for a divorce.

Because, as we have argued before (see here and here) and just as the Governor suggests (though, just to be clear, we're not taking any positions in the debate on Catalan independence!), Spain is a microcosm of what may be to come in the eurozone:

• Catalonia wants greater taxation powers since it feels that is losing out under the current system. Only two out of 17 Comunidades Autónomas (the Basque Country and Navarra) are allowed to collect all taxes by themselves, and then send part of the money (the so-called cupo) to the central government. If Catalonia gets the same deal, it says it will save cash. So Catalonia wants to opt out of most of Spain's transfer union. If Spain finds it difficult to hold its together, how much more complicated will it be for the euro to move to a transfer union - and then hold it together?

• And in a perfect illustration of what individual responsibility does: Basque Country and Navarra, the two regions that raise and spend most of their own taxes, are amongst the Spanish regions with the strongest finances (and likely to meet their deficit target at the end of the year). Catalonia is the has the highest debt/GDP ratio of all Spanish regions (see here).

Catalonia is not about to go independent. But this debate is a huge flashing warning sign for the eurozone.