Is Spain About to Break Up?

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(Photo: SBA73 / Flickr)

When voters in Spain’s Catalan region go to the polls on October 1, much more than independence for the restive province will be at stake.

In many ways the vote will be a sounding board for Spain’s future. But it’s also a test of whether the European Union — divided between north and south, east and west — can long endure.

In some ways, the referendum on Catalan independence is a very Spanish affair, with grievances that run all the way back to Catalonia’s loss of independence in the War of the Spanish Succession (1701-1714). But the Catalans lost more than their political freedom when the combined French and Spanish army took Barcelona. They lost much of their language and culture, particularly during the long and brutal dictatorship of Francisco Franco from 1939 to 1975.

The current independence crisis dates back to 2010, when — at the urging of the right-wing People’s Party — the Spanish Constitutional Court overturned an autonomy agreement that had been endorsed by the Spanish and Catalan parliaments. Since then, the Catalans have elected a pro-independence government and narrowly defeated an initiative in 2014 calling for the creation of a free republic. The October 1 vote will re-visit that vote.

But the backdrop for the upcoming election has much of Europe looking attentively — in part because there are other restive independence movements in places like Scotland, Belgium, and Italy, and in part because many of the economic policies of the EU will be on the line, especially austerity, regressive taxation, and privatization of public resources as a strategy for economic recovery.

The Pain in Spain

When the economic meltdown of 2008 struck, there were few countries harder hit than Spain.

At the time Spain had a healthy debt burden and a booming economy, but one mainly based on real estate speculation fed by German, Austrian, French, British, and U.S. banks. Real estate prices ballooned 500 percent.

Such balloons are bound to pop, and this one did in a most spectacular fashion, forcing Spain to swallow a bailout from the EU’s “troika” — the International Monetary Fund, the European Commission, and the European Bank.

The price of the bailout — the bulk of which went to pay off the banks whose speculation had fed the bubble in the first place — was a troika-enforced policy of massive austerity, huge tax hikes, and what one commentator called “sado-monetarism.” The results were catastrophic. The economy tanked, and unemployment rose to 27 percent — and to over 50 percent for youth. Some 400,000 people were forced to emigrate.

While the austerity bred widespread misery, it also jump-started the left-wing Podemos Party, now the third largest in the Spanish parliament and currently running neck and neck with the center-left Socialist Party. Podemos-allied mayors control most of Spain’s largest cities, including Madrid, Valencia, and Barcelona.

In the 2015 election, the ruling People’s Party lost its majority and currently rules as a minority party, allied with the conservative Catalan Citizens’ Party and the main Basque party.

Needless to say, the PP’s control of Spain is fragile.

Hysteresis

Starting in 2014 the Spanish economy began to grow, unemployment came down, and Spain seemed on its way back to economic health. Or at least that’s the story the People’s Party and the EU are peddling.

True, Spain’s economy is the fastest growing in the EU, averaging around 3 percent a year. Next year’s projections are that it will grow 2.5 percent. Unemployment has dropped to just over 17 percent.

But youth unemployment remains at 37 percent, the second highest in Europe, and wages still haven’t caught up to where they were before the 2008 crisis. Spain is adding some 60,000 jobs a year, but many of them are temporary positions without the same benefits full time workers get.

This temp worker strategy is continent-wide. Of the 5.2 million jobs created between 2013 and 2016, some 2.1 million were temporary.

The “recovery” is partly due to “labor reforms” that make it easier to lay off workers and replace full-time employees with temps. The shift has been from full-time workers protected by labor agreements to insecure temps with few protections. While that might make products cheaper and, it impoverishes the work force.

The strategy has become so widespread that economists have borrowed a term from physics to describe it: hysteresis. Hysteresis describes a phenomenon where force permanently distorts what it’s applied to.

“When unemployment is high for a long period of time, the shape of the labor market alters,” says Financial Times economist Claire Jones. “Would-be workers lose their skills, or find that technology or other economic forces make them obsolete. When the recovery comes, they are unable to join in. Longer-term, or structural, levels of unemployment set in and economy’s potential diminishes.”

In short, hysteresis produces an army of under and unemployed workers, whose living standards decline and who are economically marginalized. It also creates a vicious cycle that eventually dampens an economy.

If governments aren’t spending — which is a given under the strictures of the troika — and if consumers don’t have money, growth will eventually come to a halt, or at least become so anemic that it will be unable to absorb the influx of a younger generation.

All Eyes on Catalonia

Those marginalized communities and sectors of the economy are fertile ground for rightists who use xenophobia and racism to whip up anti-immigrant sentiment, as recent elections in Europe and the U.S. have demonstrated.

The vote by Britain to withdraw from the EU was put down to racism, and for some good reasons. But while anti-immigrant sentiment did play a role in the Brexit, that argument is a vast oversimplification of what happened. Much of the Brexit vote was not so much xenophobic as a repudiation of the major political parties that abandoned whole sectors of the country.

In the UK, this particularly included the policies instituted by former Prime Minister Tony Blair and his “New Labor” Party, which jettisoned its ties with the trade union movement and bought on neoliberal policies of free trade and globalization.

However, many of those Brexit voters turned around a few months later and backed the Labor Party and Jeremy Corbin’s left agenda. Given an opportunity to vote for ending the long reign of austerity and for free university tuition, improved health services, and re-nationalizing transportation, they voted Labor, xenophobia be dammed.

Because the Spanish Popular Party claims that the current economic recovery is the direct result of its austerity and labor policies, other EU players are paying attention to the Catalan vote. If the vote goes badly for Catalan independence — and polls currently suggest it will be defeated — the PP will claim a victory, not only over Catalan separatism, but also for the party’s economic recovery strategy.

The French are certainly paying attention. Newly elected president Emmanuel Macron is preparing a similar program of cutbacks and labor “reforms” that he intends to ram through by executive decree, bypassing the French parliament.

A victory for the PP is also in the interests of the troika as proof that its recovery formula works — even though the track record of austerity as a cure has few success stories, and even those are questionable. For instance, low energy prices and a weak euro have more to do with the Spanish recovery than cutbacks in social services and the evisceration of labor codes.

Spanish Crosscurrents

The Popular Party should be riding high these days, but in fact its poll numbers are declining. It is still the largest party in Spain, but that translates into only 31 percent of the voters. Between them, the Spanish Socialist Party and the leftist Podemos Party garner just short of 40 percent.

Part of the PP’s woes stem from the fact that many Spaniards recognize there is something sour about the recent “recovery.” But there are also the corruption charges leveled at the PP — charges that have even ensnared Prime Minister Mariano Rajoy, who was recently forced to testify in a bribery and fraud case against some leading members of his party.

While the Socialists have also been tarred with the corruption brush, the current case has riveted the public’s attention because some of it reads like a script from the Sopranos.

The key defendant is Francisco Correa, who likes to be called Don Vito, Marlon Brando’s character in The Godfather. Two of his associates are known as The Moustache and The Pearl. Correa and 10 others have already been sentenced to prison for fraud and bribery, but Correa is also on trial for setting up a slush fund. Rajoy testified in that trial, although so far the prime minister is not accused of any wrongdoing.

A survey by the CIS Institute found that almost 50 percent of Spanish voters are deeply concerned with corruption, and that sentiment is dragging the Popular Party down.

The left and center-left parties are split on the Catalan question. Both oppose separatism, but they come at it very differently. Podemos is urging a “no” vote October 1, but it supports the right of the Catalans to have their initiative. That position, along with Podemos’s progressive political program, has made it the number one party in Catalonia.

The Socialists have traditionally opposed Catalan separatism, and even the right of the Catalans to vote on the issue. But that position has softened since a major upheaval in the party that began last year when the Socialists’ right wing pulled off a coup and drove the party’s left wing out of power. But the Socialist right-wingers made a major mistake by voting to allow Rajoy to form a minority government and continue the austerity policies. That move was too much for the party’s rank and file, who threw out the right this past May and reinstated the Socialists’ left wing.

The Socialists’ willingness to consider allowing the initiative is partly a matter of simple math. The party’s opposition to Catalan independence has resulted in it being virtually annihilated in the province, and no Socialist government has ever come to power in Spain without winning Catalonia.

A Country Transformed, a Union Quaking

Whatever happens October 1, Spain isn’t going to be the same country it’s been since the restoration of democracy in 1977.

The old two-party domination of the government is over, and there’s general recognition that there has to be some shift on the Catalan question. Even Rajoy — who’s hinted that he might consider using the military to block the October 1 vote, or ruling the province from Madrid — has offered to give Barcelona the same deal the Basques have. That would include collecting taxes, something Catalans now don’t have the right to do.

There is no little irony in Rajoy’s offer. When the Catalans made that same offer in 2012, Rajoy and the Popular Party wouldn’t even discuss the proposal. It’s a measure of how the issue has evolved that Rajoy is now making the same offer the Catalans did a half decade ago.

Polls — weak reeds to lean on these days — show the initiative going down to defeat, but the situation is fluid. Rajoy’s recent proposal and the softening of the Socialist Party’s position might convince the majority of Catalans that some kind of deal can be cut. Young Catalans favor independence, but older Catalans are uncomfortable with what will be a leap into darkness.

On the other hand, if Rajoy comes down hard, it will likely bolster the “no” vote.

The European Union is in a crisis of its own making. By blocking its members from pursuing different strategies for confronting economic trouble and instead insisting on one-size-fits-all strictures, the bloc has set loose centrifugal forces that now threaten to tear the organization apart.

The eastern members of the EU have charted a course that throttles democracy in the name of stability. The southern members of the bloc are struggling to emerge from austerity regimes that have inflicted widespread, possibly permanent, damage to their economies. Even members with powerful economies, like Germany and France, are trying to keep the lid on the desire of their people for a better standard of living.

The Catalan vote reflects many of these crosscurrents, and is likely to be felt far beyond the borders of Iberia.

Foreign Policy In Focus columnist Conn Hallinan can be read at dispatchesfromtheedgeblog.wordpress.com and middleempireseries.wordpress.com.