Catalan Independence: Deutsche Bank Explains How We Got Here & What Happens Next

Tyler Durden's picture

In the past few days, many questions have arisen regarding the exact institutional mechanisms and next steps surrounding the Catalan events.

In this note, Deutsche Bank's Marc de-Muizon provides a Q&A addressing these issues.

Why is the referendum illegal?

The Spanish Constitution states that Spain cannot be broken up. The Article 2 in the preliminary part of the Constitution states: " The Constitution is based on the indissoluble unity of the Spanish Nation, the common and indivisible homeland of all Spaniards". The Spanish Constitutional Court suspended the law passed by the Catalan parliament at the start of September to organise the referendum.

What is needed to change the Spanish Constitution?

Article 167: For an ordinary reform of the Constitution you need:

  • A three-fifth majority in each house of Parliament.
  • If this fails, an overall majority in the Senate (upper house) and a two-thirds majority of both houses (joint in Congress) are needed.
  • Once approved, one-tenth of the members of either house can ask for a referendum to ratify the changes within fifteen days.

Article 168: For a total or substantial reform of certain parts of the Constitution - such as the preliminary part containing Article 2 mentioned above:

  • A two-thirds majority in each house is required.
  • The lower house then has to be dissolved immediately by the King and new elections for both houses take place.
  • The new constitutional text is examined by the new houses and a two-thirds majority in each house is required.
  • Finally, the new constitutional text needs to be approved by referendum.

Therefore, changing the Constitution requires significant political consensus among national parties and support from the wider Spanish electorate. The Spanish Constitution has only experienced two modifications since 1978: one in 1992 following the Maastricht treaty and one in 2011 in the midst of the sovereign crisis. In both instances, the less rigid procedure of Article 167 was used.

If Catalonia unilaterally declares independence what are the options of the Spanish government?

If Catalonia unilaterally declares independence in the coming days, one of the main options for the Spanish government would be to use Article 155 of the Constitution. The Article 155 suspends the authority of the regional government and substitutes it with the authority of the central government. The procedure is the following:

1. The Spanish PM Rajoy would lodge a complaint with the Catalan President Puigdemont.

 

2. If Puigdemont does not respond accordingly, Rajoy would have to present to the Spanish Senate - where Rajoy's PP has a majority - the measures he intends to take.

 

3. A majority is required in the Senate to approve this government plan.

 

4. The Spanish government can now give direct orders to regional civil servants (e.g. police, teachers, administrative staff)

A few contextual points regarding Article 155 should be kept in mind. It has never been used in the past. The wording of the text and the lack of precedent means that the exact extent of the central government's powers is not necessarily clear. This likely explains why Rajoy has been trying to get the political support of Spanish mainstream parties Ciudadanos and PSOE.

If Rajoy does not want to use Article 155, he may have two other options:

  • Either rely on the Constitutional Court to suspend regional officials and civil servants that do not respect its decisions.
  • Or, he may also use the Law of National Security that directly allows the Spanish PM, via royal decree, to declare a "situation of interest for national security" and organise a structure that guarantees "the defense of Spain, its principles and democratic values" via reinforced cooperation among administrations. This law was approved with the support of the PSOE and the PP in September 2015. Compared to Article 155, the Law of National Security does not explicitly mention autonomous communities and does not require the approval of the Senate. With this option, the Spanish government could avoid having to officially suspend the competencies of the regional government.

Would an independent Catalonia remain a member of the EU?

Very unlikely. The EU's position is that if an independence referendum is organised according to the Spanish Constitution then it would be compliant with the EU framework and the EU would respect Catalonia’s choice. Catalonia would most likely have to then go through an accession process.

On 14 Sept 2017 European Commission President Juncker said: “We have always said that we would follow and respect the rulings of the Spanish constitutional court and the decisions of the Spanish parliament [...] It is obvious that if there is a Yes to Catalonia's independence - that remains to be seen - we will respect that choice [...] But Catalonia will not be able to become an EU member the morning after, Catalonia will be submitted to an accession process".

On 4 October 2017, European Commission Vice-President Timmermans repeated that the referendum was "not legal" and was "an internal matter" while adding that it was "time to talk".

If an independent Catalonia was not formally a member of the EU, it would not formally be a member of the euro-area either and would not have representation at the ECB.

Would an independent Catalonia be successful in its EU accession process?

Very unlikely. Spain and potentially other EU member countries with strong regionalist movements would likely veto the start of formal membership negotiations. Indeed, the accession process consists of three stages:

1. Official candidacy for membership. To move on to the second stage of the process, all EU governments must unanimously agree on a framework or mandate for negotiations with the candidate country.

 

2. Formal membership negotiations that involves the adoption of established EU law and reforms to ensure the country meets the accession criteria.

 

3. Once negotiation and reforms have been completed the country can join the EU.

What is at stake and what is the solution?

Regarding the scope of a long-term solution, we discussed the issues at stake and the set of possibilities in a previous article published in Focus Europe on 15 September 2017 (see here). As we wrote, a solution to Catalonia's independentist push would have to combine further fiscal autonomy and longterm commitment to infrastructure investment by the Central state. The Basque model is very unlikely to be replicated but an in-between solution, where the Central government also intervenes less in the Catalan legislative process, might have to be found.

Catalonia represents ~20% of Spanish GDP, and contributes to fiscal transfers towards poorer Spanish regions.

But, Catalonia is also one of the most indebted Spanish regions...

What is the political situation in Spain?

The current independentist Catalan government is held together by the desire to hold a referendum. In September 2015, early elections were held. The independentist centre-right CiU and independentist Republican Catalan Left ERC campaigned together under the Junts pel Si banner in support of independence. They had to rely on the anticapitalist CUP party to obtain a majority of seats in the regional parliament. This meant that the independentist parties had a majority of seats while collecting ~47% of the expressed votes. The alliance with the CUP resulted in the choice of Puigdemont over Mas as President. The Catalan government has since focused on organising an independence referendum.

According to polls prior to the 1 October referendum it was unclear that the independence parties would be able to achieve a majority in the event of a new election.

The majority of the Catalan electorate is left-of-centre.

But, support is divided among varying degrees of autonomy/independence agendas (see two figures below). A left-wing alliance between the ERC and the Catalan branch of Podemos could be a possibility for a Catalan government in new regional elections.

What is the national political situation?

Since the June 2016 national election (see margin chart), the current Spanish PM, Rajoy leads a minority government. He has relied on the support from Ciudadanos and the centre-right Basque independentist party PNV to pass his 2017 budget. In the weeks preceding the Catalan referendum, the PNV put its support for the 2018 budget on hold. While Rajoy has the support of Ciudadanos and opposition party PSOE to face the Catalan independentist push, the PSOE has not yet backed the possible use of Article 155. Compared to the PP and Ciudadanos, the PSOE and in particular its leader Sanchez remains more open to further autonomy for the regions. The recent developments have put the spotlight back on the difficult political equilibrium at the national level.

What are the next steps?

In the coming days and weeks, two paths can generally be devised:

Unilateral declaration of independence.

  • The Catalan regional parliament was supposed to meet on Monday 9 October to potentially proclaim independence. The Spanish Constitutional court has suspended the meeting but Catalan leaders may choose to gather the regional MPs in another location. It is unclear when a unilateral declaration of independence could be proclaimed. But if this happens Madrid would have little choice but intervene to immediately end it.
  •  
  • Tensions would likely continue or escalate and economic activity may start to be hurt at least in the short-term1.Ensuring that no violence erupts and creating an environment where new regional elections with a large participation can eventually be called would be key objectives for the Spanish government.

No unilateral declaration of independence occurs and negotiations start.

  • To do so, the Catalan leaders would have to significantly tone down the independence rhetoric. This would likely lead to a de-escalation of tensions and a change in the position of Madrid.
  • A neutral party may have to be found to accommodate the negotiations.
  • Under such a scenario, the unity of the independentist front would likely dissolve. Disagreements between centre-right and left-of-centre parties could erupt.
  • Early regional elections may have to be called once the situation in Catalonia has normalised. As described above, according to polls, the left-of-centre ERC may come out first, albeit far from a majority.

No unilateral declaration of independence and stalemate continues

  • The Catalan leaders could choose to not tone down their independence demands but continue waiting regarding the independence declaration.
  • The situation would remain similar to the one of the last few days with Rajoy waiting and not choosing to suspend the Catalan government.
  • The economic cost to Catalonia would start to rise and the political stalemate continue.

What is the redemption schedule of Catalonia's bonds?

In the figure below, we present the maturity dates of the Catalan regional government's bonds for the coming years.

The next redemption is on 17 October 2017 but the next large redemption is in June 2018.

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BritBob's picture

Spain uses the same flawed territorial integrity doctrine on Catalonia that she uses to deny that the people of Gibraltar have the right to self-determination. To take a look at this legal doctrine:

Gibraltar – Territorial Integrity (1 page)

 

https://www.academia.edu/29347730/Gibraltar_-Territorial_Integrity

Déjà view's picture

España consented to illegal Yugoslavian breakup...similar situation...

ThirdWorldNut's picture

Elites pretending everything is god damn bodacious - first ignoring the whining commoners, then treating them like shit when they want a mature and mutually-beneficial solution. And when the same people finally throw in the towel and walk away, try to coerce them with consequences - calling up their rich business friends to threaten to relocate somewhere else because of 'uncertainty', calling up their friends in media to announce the impending doom. If this does not work call them simpletons, misguided, racist and xenophobes, make unjust demands for divorce settlement. Push people to the brink and when they snap, push them even more. Grind the commoners into dust, show them where they belong, make an example. After all, how dare those plebs.

Bravo Spain, you have learned very well from EU. EU is a good teacher. Spain is a good student. Catalans are all fanatic idiots.

doctor10's picture

as soon as Brussels figures out they can squeeze Catalonia just as hard as they squeeze Spain -and they get a little more from Barcelona than they otherwise would if Madrid first gots its fingers on it-its a done deal!!! 

 

And Rajoy knows it!!

Escrava Isaura's picture

Catalan Independence: Deutsche Bank Explains How We Got Here…..

LOL. First paragraph and the Deutsche Bank got it wrong already. Here it is:

The Spanish Constitution states that Spain cannot be broken up.

Says who? The five people that wrote it?

Now, on the serious question: How We Got Here.

Because growth is unsustainable…..While everyone wants a piece of BAU—business as usual.

Now humanity is facing a self-inflicted ‘evolutionary’ supernova, meaning  a catastrophic explosion that, most likely, will kill itself.

 

Catalonians have no clue what the real problem is because they can’t face it.

"A central ingredient in smart growth' is regional planning; but, regional planning encourages more population growth, and population growth is unsustainable." We hear a lot today about "smart growth," as though "smart growth" was the magic key to the achievement of sustainability. A central ingredient in "smart growth" is regional planning; but, regional planning encourages more population growth, and population growth is unsustainable.” – Professor Albert Bartlett, 1994.

http://www.thesocialcontract.com/artman2/publish/tsc0904/article_818.shtml 

 

 

sickavme's picture

"What are the next steps?"

 

That's easy: bombs n bullets...

MANvsMACHINE's picture

This genie is never going back in the bottle. If Spain thinks they can get Catalonians to accept non-secession under any ridiculous constitutional basis, they will be hugely disappointed.

Red-Pill Girl's picture

Catalonia independent and non-EU would sound nice IF they were RIGHT WING.

Since they're not... fuck them.. give them mace and battons.

Actually less (NO) mace and more battons (as we seen last Sunday)

Aaand, by the way.. big companies already planning to move their HQs away from Cacalonia:

CaixaBank, Sabadell Bank, Banco Mediolanum, Arquia Bank , Gas Natural Fenosa, Abertis Infraestructures, Oryzon Genomics, BallenOil, Eurona Telecom, Sociedad General de Aguas de Barcelona, Service Point Solutions, Dogi International Fabrics, Proclinic Expert.

They know that those lefturds will tax them to death if they'll get the chance.

max2205's picture

Spanish olives Greek olives. ... no dif 

zeroDirkHedge's picture

George bush would say :”it’s just a goddammed piece of paper”

zen0's picture

Spain was against recognition of Kosovo. So were the Greeks.

Friday's picture

Not really. Yugoslavia was a federation, the constitution allowed unilateral breakup to any republic. Croatia and Slovenia did it legally but there was a crazy dictator in Serbia that had to make a war.

Red-Pill Girl's picture

Kosovo was NOT one of the 5 Yugoslavic republics:Croatia, Slovenia, Serbia (all 3 majority Christians), Montenegro (mixed), Bosnia-Hertzegovina (major. muslims).

Is just a part of Serbia with a lot of albanian muslims.

Déjà view's picture

If that were factual...why did not Iron Fist Tito (Guts To tell Stalin NO) who was part Slovenian and Croatian allow it?

In 1971 the constitution was transformed, allowing for a looser federation that limited the federal government to defense, foreign affairs, fiscal and monetary policy, and ethnic and civil rights. The republics meanwhile took primary control over other functions, and now held a veto over decisions made by the federal government.

https://www.globalsecurity.org/military/world/war/yugo-hist2.htm

Slovenia was the first to declare “sovereignty” in 1990, issuing a parliamentary declaration that Slovenian law took precedence over Yugoslav law. Croatia followed in May, and in August, the Yugoslav republic of Bosnia-Herzegovina also declared itself sovereign. Slovenia and Croatia began a concerted effort to transform Yugoslavia from a federal state to a confederation.

https://history.state.gov/milestones/1989-1992/breakup-yugoslavia

PrometeyBezkrilov's picture

There are different rules for different players at the table. You steal chewing gum from 7/11, you'll go to jail, HSBC got caught with narco money launderring, they just got a slap on the hands. These are the rules of the game.

Déjà view's picture

Castilians...demographically 75% of total population...good luck changing constitution democratically...

http://www.populstat.info/Europe/spaing.htm.

Five Star's picture

If Catalonia were a country it would be bigger than 12 EU Countries that already exist

http://thesoundingline.com/separation-leave-catalonia-spain-economically/

Red-Pill Girl's picture

Catalonia independent and non-EU would sound nice IF they were RIGHT WING.

Since they're not... fuck them.. give them mace and battons.

Actually less (NO) mace and more battons (as we seen last Sunday)

Arrest Hillary's picture

Don't forget Argentina .... invading the Falklands .... well, I suppose you would be the last one to forget that ?

serotonindumptruck's picture

Catalonia must declare independence on Monday.

If they waver in their convictions, it will be seen as a sign of weakness by Madrid.

Arrest Hillary's picture

Catalonia is a Muslim friendly, socialist shithole .... they will give Marseille, Sicily, Greece competition .... for sanctuary capital of EU .... Spain isn't much better ? 

erk's picture

By declaring independence, they are also choosing to ignore Spanish law, which is kind of the whole point isn't it, because the Spanish law obviously sucks for them.

Not unlike Crimea.

 

Dilluminati's picture

These conditions of which these people are bound, who created them?

When in the Course of human events it becomes necessary for one people to dissolve the political bands which have connected them with another and to assume among the powers of the earth, the separate and equal station to which the Laws of Nature and of Nature's God entitle them, a decent respect to the opinions of mankind requires that they should declare the causes which impel them to the separation.

BerlinBusiness's picture

When laws are made that prevent people from voting, then those laws need to be broken.

When the state no longer respresents the will of the people, then that state needs to be replaced.

When force is used to destroy democracy, then we must use our bodies to demonstrate.

Catalonia's march to freedom is irreversible.

 

Government needs you to pay taxes's picture

It's hilarious when the little globalist water-carriers talk of what is unlawful about declaring independence.  You want an article that justifies this action?  How bout article 7.62?  Or maybe article 5.56?  Mr Molotov throws a real nice party, particularly when his guests include light-armored car drivers.  What was that drink called, a car bomb?!

Don Diego's picture

the Basques tried it for 40+ years, they are still a part of Spain.

In both cases, there will be no independence as the silent majority is against. Silent because the independentists thugs will make your life impossible (puncture your car tyres, isolating your children putting dog shit in your mail box...) in those two territories if you speak up.

Government needs you to pay taxes's picture

What one man  calls the law another man may call tyranny.  The difference is only the will to change the status quo.

eltxamo's picture

well seems like you DIDN'T vote on your countrys constitution, but we spaniards did and approve it. And it was made to end the fascist Franco regime and ensure a fair country for everyone, even regions power were enshrined to placate the nationalist but they instead teached the kids in the regional languages instead of spanish and put all that requeriments to learn the language for public servants so nationalist enjoyed good paying positions for years, now they have created a monster that think that they can be independent when clearly the constituion calls then nations just in name not in law, not in fact.

HenryHall's picture

UDI - Unilateral declaration of independence.

The Yankees tried it and they are no longer part of England.

The Rhodesians tried it and they are no longer a colony of UK.

The Turkish Cypriots tried it and they are no longer part of Republic of Cyprus.

The Crimeans tried it and they are no longer part of Ukraine.

The whole point of UDI is that it is unilateral as well as illegal and you have to be ready to start killing people to make a success of it.

 

 

Overflow's picture

Sure.

  But Catalonia is not and never been a colony, neither an opressed region. Opposite, they've been the privileged one since the very beginning of Spain five centuries ago.

1 Alabama's picture

this is easy, just declare the central gvt corrupt and illegal, use the laws of nature to bolster your case, and leave the national gvt in the dust with the debt, but not the tax income from the newly created region, that should teach the centrals a lesson or two.

Don Diego's picture

LOLZ problem it is widely known Catalan politicians are even more corrupt and that Catalonia not only brings tax revenue, it also brings, duh, fiscal expenditures.

Don Diego's picture

Back on planet Earth, yet another Catalan corporation announces its move out of Catalonia.

https://elpais.com/economia/2017/10/07/actualidad/1507375730_242710.html

it becomes clear that the Catalonian higher GDP depends mostly from the Spanish captive market. With a Catalonia independent, no need for the other Spaniards to buy a Seat car to give work to Spanish workers, no need to buy Freixenet cava when you can buy a cheaper champagne knock- off from the rest of the EU, no need to have a Caixa bank account when you can have an ING account with lower fees.

The Catalonian "wealth" was mostly built at the expense of the rest of Spain, this is becoming clear to these private companies voting with their feet. You have been fooled folks.

Stef1304's picture

"You have been fooled folks."

I agree on those terms. Foolish and incompetent political leaders on both side. 
Anyway, Spain is now the "problem"... LOL
So, there is no longer a need to look at the broader picture, for a while. 

1 Alabama's picture

yet since a good portion of this so called weatlh comes from tourists, i fail to see the rest of spains contribution to the region, todays people walk on the sidewalks built by yesterdays people.

 

Fool me once, shambers on me, fool me twice, shambers on you.

Don Diego's picture

nope, tourism is just 15% of GDP or so. Spain specializes in low-end tourism, the 60+ million visitors leave little money per capita.For example  you can book a one week vacation for 600 euros including flights, there is little profit. Even worse, the hordes of Dutch/German/French mobile homes. They come already filled with food bought at their local LIDLs, so the only money they leave in Spain is camping fees, water and gas fill-ups.

Hopefully many of these visitors will start boycotting Spain. and spend their few euros elsewhere.

peddling-fiction's picture

Yeah, that is why I prefer Jerez and their dandys to the coast and their tourists.

conraddobler's picture

The keep saying it's ILLEGAL but ..... rights don't come from a piece of paper they come from God.

Overflow's picture

Yes, rights come from law, from Constitution.  Ther'e no such thing called "natural rights".  In nature strenght is the only law, no rights for anybody.

 

But SURELY rights and revolutions have never come from victimistic demostrations or twitter campaigns for simpathy.

 

Grow up.

saldulilem's picture

US declaration of independence was also illegal. What a pickle!

Overflow's picture

Yeah, that's why America colonies had to win a war against England.

(We spaniards helped them a lot)

 

But, guess it, Catalonia is not a colony. Never been.  It's been part of Spain since the beginning.

 

 

overmedicatedundersexed's picture

if it's on paper- it is the law, except when the reptiles find it was written by old white slave owners,  well then it's just paper..

who got the guns?? Mao would ask, then state: "They get to decide this vote."

Don Diego's picture

The cataliban police tried to buy sniper rifles in .300 Whisper and .338 Lapua but the purchase was blocked by Spain. Odd choice for a police force. I cannot see any scenario for the police use of .300 Whisper unless you are talking agent provocateurs in an urban conflict opposing police and unarmed demonstrators.

Weisshorn's picture

I drove southwards through Catalona on Friday on A7 and N340.  Drove through the French/Spanish border at La Jonquera without slowing down.  Saw a few groups of Guarda Civil vans moving and one group of Morro vans.  There was the odd catlan flag but other than that no indication of a show down.

Don Diego's picture

what? how do you dare contradict ZH's narrative with facts? an arrow down for you Sir.

givadam's picture
"Would an independent Catalonia remain a member of the EU?

Very unlikely. The EU's position is that if an independence referendum is organised according to the Spanish Constitution then it would be compliant with the EU framework and the EU would respect Catalonia’s choice. Catalonia would most likely have to then go through an accession process."

Unless you are Scotland.

Don Diego's picture

The Catalibans are right on this one. In theory the EU will expel Catalonia, in PRACTICE the transition period will be soooooo long that they will not leave the EU effectively (I am afraid it can be the same for the UK). And of course they will keep the euro. Nobody is allowed to leave the plantation that easily.

MANvsMACHINE's picture

And nobody should forget the Spanish Inquisition. They will certainly pay a surprise visit soon but no one will know in advance. That's how they roll.

falak pema's picture

There will be NO Unilateral declaration of Independence; even half of Catalonia is against it...

These national movements are a sign of irrational populism and just the frustation of nation states now faced with the larger challenges of paradigm change that will change the course of the world.

Ecosystem protection is the new challenge and these crises are the rash of past paradigms now taken in the swell of social movements trying to apprehend where their future lies...

Big changes in store; don't take the rash pimples of past constructs for the signs of where the true fights will have to be : move away from mad consumerism, move towards planet protectionism.

Pasadena Phil's picture

"The Spanish Constitution states that Spain cannot be broken up. The Article 2 in the preliminary part of the Constitution states: " The Constitution is based on the indissoluble unity of the Spanish Nation, the common and indivisible homeland of all Spaniards"."

But when the "Spanish Nation", or more specifically, the entrenched corrupt elites, conspire to surrender national sovereignty to a "higher power" like the EU, that effectively revokes the Spanish Constitution.

Once you revoke the main expression of the unity that defines and binds the "Spanish People" (or any other nation), what is left is an artificial amalgamation of "global citizens" who simply will never be governable as a single homogenous population. The Tower of Babel gone global and hi-tech.

In the end, the very hi-tech enslaving us can be turned off by the billions of us that outnumber the maybe hundreds of Masters of the Universe. If we are willing to do it. Without that technology, they are powerless to stop the inevitable zombie apocalypse determined to find and kill every last one of them.

At least that's the way it works out in the movie. Life often imitates art so...