22 Sep 2012

Catalonia Cries for Independence, Spain Might Break Apart, And Its Military Threatens To “Crush” The “Vultures” + P.S. Spain broke eurozone rules to cut bond debt costs today - FIX!

By Wolf Richter: Spain has enough problems: a debt crisis, a hangover from a housing bubble, unemployment of over 25%, youth unemployment of over 50%, massive demonstrations against “structural reforms” that the government is trying to implement in its desperate effort to keep its chin above water.... And now it has a new one: the possible breakup of the country. The military has already chosen sides. 
It started last week in Barcelona, capital of the Autonomous Region of Catalonia, the richest region in Spain. Of the 7.5 million Catalans, between 600,000 and 1.5 million—an astounding 8% to 20% of the population!—protested in the streets, demanding independence.
Antagonism between Catalonia and Spain has simmered for a long time. But the financial fiasco that Spain is mired in deepened the fissures. Out-of-money Catalonia had to ask the central government for a bailout. Catalans are frustrated. They claim that under the current fiscal setup, Catalonia transfers €16 billion annually to the central government, and that these transfers bankrupted the region. Now, in exchange for the bailout, the central government has imposed austerity measures that cut into health care, education, and other services.
On Thursday, Catalan President Artur Mas met with Prime Minister Mariano Rajoy, originally to beg him for a new tax deal. But the massive demonstration in Barcelona had added independence to the agenda. Rajoy brushed him off, with references to the constitution that didn’t allow regions to secede.
“Constitutions may or may not be modified, but they do not subjugate the will of the people,” Mas lamented after the meeting.
As leader of the Democratic Convergence of Catalonia and chairman of the governing Convergència i Unió (CiU) coalition, he represents the middle class and has supported Catalan independence only in an ambiguous manner. Until now. “Catalonia will follow its path,” he said. Parliament would meet next week to “consider the next steps.”
“Illegal and lethal,” howled Foreign Minister José García-Margallo and threatened Catalonia with exclusion from the EU if it chose independence. Decisions in Brussels as to which country will be allowed to accede to the EU have to be unanimous, and Spain’s veto would bar Catalonia “indefinitely,” he said.
Nevertheless, Friday morning, CiU spokesman Francesc Homs pushed that agenda further: after the elections—early elections could be held on November 25—Parliament may initiate the path to independence. This could be by referendum, but there would be alternatives, he said, “for example” a parliamentary vote to declare statehood.
The CiU hasn’t yet decided how to articulate its demand for statehood in its electoral program, but the strategy toward independence is an “irreversible process,” Homs said. He described Spain as a “lion” attacking the Catalan “gazelle” whose sole weapon is “agility.” And the threat of getting kicked out of the EU? “Catalans are European citizens,” he said, and he didn’t know how it would be possible to kick them out. But he wasn’t worried about the all-important business community. “We won’t lose investments if things are expressed democratically,” he said.
The response was immediate. Catalan independence would be a “tremendously huge problem“ for businesses, said Joan Rosell, president of the Spanish Confederation of Employers’ Organizations (CEOE), which represents state-owned and private sector enterprises. Employers, he said, supported a single market as a way out of the current turmoil.
Declaring statehood would have no legal value, Deputy Prime Minister Soraya Saenz de Santamaria declared at a press conference after the Council of Ministers. And the government didn’t welcome early elections, she said; “political instability” would aggravate the crisis. But she threw Mas a bone: the government would be willing to consider reforming the financing model of the Autonomous Regions.
A discussion of the nitty-gritty of independence has broken out. Hot topic: the distribution of central government debt. Would Catalonia have to carry 20% or 16%? Or none because Spain issued the bonds and not Catalonia? Would Catalonia be better off within Spain or as independent state? Would it even be financially viable? Rumors are swirling that members of the governing coalition have asked the European Commission if Spain can legally stop Catalans from seceding, and if it can expel an independent Catalonia from the EU via its veto power. As there is no law that would allow secession, there is also no law regulating it. So everything is up in the air. But the fact that this is getting serious attention, shows just how far the process has already gone.
And the military staked out its role. Colonel Francisco Alaman promised to crush the “vultures” if they chose independence. “Independence for Catalonia? Over my dead body,” he said. “Even if the lion is sleeping, don’t provoke the lion, because he will show the ferocity proven over centuries.” Words of the crazed fringe? Apparently not. “Deeply-rooted thinking in large parts of the armed forces,” explained retired Lt-Gen Pedro Pitarch. And it opened a whole new chapter in the Eurozone saga that, despite all assurances to the contrary, simply keeps getting more uncertain.
When the German Constitutional Court nodded with a stern smile on the ESM bailout fund and the Fiscal Union treaty, politicians breathed a sigh of relief. The German revolt was over. But steam is billowing once again from the misaligned pipes of the Eurozone, this time in France, where the Fiscal Union treaty had been silenced to death. Read.... A French Rebellion Against Unelected Bureaucrats: “European Coup D’Etat And Rape Of Democracy”
And here is the hilarious but brutally truthful video from down-under comedians Clarke & Dawe that in 2.5 minutes summarizes better than anything else the entire Eurozone debt crisis.



Spain broke eurozone rules to cut bond debt costs today - The Slog


Although Madrid sources told The Slog this morning that next week’s formal Spain bailout will include “unlimited bond buying by the ECB”, market sources are suggesting this evening (5.00pm BST) that the Spanish government drove a coach and six through eurozone bond rules to artificially depress bond prices earlier today.
“The explanation is that Spanish banks have significantly increased their borrowing from the ECB, not LTRO funds, and are using the proceeds to buy Spanish debt at the auction, thereby causing yields to drop,” asserted one UK opinion leader, “Then the newly purchased bonds are used as collateral for additional ECB borrowing by the Spanish banks.  You can see that the drop in yields is far greater than the adjustment to the new OMT program.  This is a stealth Eurobond mechanism, and Germany is on the hook for 22% of the ECB liability.”
It’s not the first time the Peter-to-Pay-Paul-Ponzi scheme nonsense has reared its head in Clubmed, and it won’t be the last. But the scale and brazen nature of it makes Draghi’s subordination of the Greek bondholders look like philanthropy.
“All bets are off now,” agreed The Slog’s trusted Madrid informant and explicator, “they’re making it up as they go along, and the rules left the building long ago. A year ago it was a case of knowing smiles about the horsesh*t. Now it’s a case of watching every move like a hawk. They’ll kill the market before they’ve finished…it was bad enough destroying the credibility so much over Greece, but now the crooks have moved in, well….it can’t work, and it won’t work”.
The issue he describes is far from being restricted to Spain. An EU-IMF report into whether Greece’s debt is manageable looks set to be delayed until mid November because policymakers ‘want to avoid any more shocks to the eurozone economy’ . Bollocks: O’Drama wants a quiet life until he’s safely back in the Oval Office chair. I doubted the reality of this until last week, but despite the Mittgaffes that follow the GOP candidate wherever he goes, the Black Dude is clearly paranoid about rapid contagion screwing up his triumphal re-election. All of which might suggest that he either thinks (or more likely, is being advised) that when it comes, the Big Wave will be moving faster than a Hydron molecule.
Spain is, many of my friends out there believe, on the verge of break-up. Greece is showing signs of splintering as Left and Right battle to replace the ancien régime. Portuguese Prime Minister Pedro Passos Coelho told the Lisbon parliament that his government “was not deaf” to the fury unleashed after it announced plans to hike social security payments levied on workers.
Mario Monti was not playing host to three other leaders today as Prime Minister of Italy: he was doing so as fellow Goldman Sachs eminence grise behind Mario Draghi in the game of Rollerball now getting into its stride between the control freaks in Berlin and the sociopaths in ClubMed. Trying to work out the Venn diagram of their respective and individual motives in all this is rapidly becoming a mugs’ game. Gold is cruising upwards again, and glitz-bricks continue to sky-rocket. It really is batten down the hatches time.