Europe's Crisis Spawns Calls for a Breakup—of Spain

ROPE NEWS
Updated October 28, 2012, 9:46 p.m. ET


By MATT MOFFETT

Many people in Catalonia, a province known as "the factory of Spain," feel that the rest of the country has become an economic millstone. They're pushing for an independent Catalonia. WSJ's Matt Moffett reports from Barcelona.

BARCELONA, Spain—This vibrant northern region of Catalonia has long been known as the "factory of Spain" for generating wealth that helped sustain the entire nation. Now Catalonia, beaten down by years of recession, has become the battleground in what threatens to become an economic civil war.

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Protesters in Catalonia last month marched for independence in Barcelona.

In protests large and small, hundreds of thousands of Catalans are embracing a stark proposition: Only by breaking ties with Spain and becoming an independent country can Catalonia free itself from economic malaise.

Catalans go to the polls Nov. 25 for a regional parliamentary election, and polls show pro-independence parties in front.

"Madrid has been draining us dry for too long," says Josep Casadella, a corporate human-resources administrator. He became an Internet sensation not long ago after posting a video of himself refusing to pay the fare at a toll booth and complaining that Spain should build free roads for all the taxes it collects.

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The region's president, Artur Mas, has called the marriage between Catalonia and Spain's capital one of "mutual fatigue." He has pledged to place an independence referendum before voters.

Appalled at the separatist sentiment, a military veterans' association said that politicians pushing for Catalonian independence should be tried for "high treason." In recent days, pro-Spanish-unity protesters held a smaller demonstration of their own. Marchers held a sign reading: "Help, Europe. Nacionalists are crazy."

Spain's internal struggle echoes a larger debate convulsing the euro zone itself, as wealthier northern nations complain about supporting poorer southern ones. But now, as Europe enters its fifth year of crisis, the economic strains are deepening the fractures within some nations.

In Spain and Belgium, and to a degree Italy, local and national governments are battling over how to allocate scarce resources. Even within Germany, which is economically stronger and politically stable, richer areas are grumbling about the cost of subsidizing the poorer areas.

Catalonia's president, Artur Mas, called the marriage between his region and the Spanish capital one of "mutual fatigue" in a speech, likening it to the way "northern and southern Europe have grown weary of one another."

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Cultural and linguistic variances within many EU countries only make matters worse. Catalonia itself is a prime example: Its own language is widely spoken and instilled in younger generations as the main language in most elementary schools.

Throughout the continent "there are some very long-standing strains and tensions of unequal regional economic development that are now being brought to the surface," says Adrian Smith, editor of the journal European Urban and Regional Studies.

Catalonia's turmoil represents a major threat to European leaders' hope of containing Europe's crisis by stabilizing Spain, which is home to the euro zone's fourth-largest economy but is also vying with Greece for the highest unemployment rate in the euro zone, around 25%. Policy makers had hoped that EU aid would keep Spain afloat while investors digest losses in Greece, which is even more troubled.

Spain's financial markets are quivering at the mere talk of secession of Catalonia, which produces almost 19% of Spain's economic output and 21% of its taxes. Investors fear the revolt will undermine Prime Minister Mariano Rajoy's plan to get a grip on spending, particularly in the 17 regional governments that have been a big source of Spain's deficit.

If pro-independence parties triumph at the ballot box in next month's regional election, Catalonia's leader, Mr. Mas, will face pressure to make good on a vow to place an independence referendum before voters. National authorities say that would be illegal.

Mr. Mas studiously avoids the word "independence" to define his goal. Some analysts believe he would satisfied simply with a more favorable revenue-sharing deal. Meanwhile, impelled by swelling support for secession, he has become bolder, asserting publicly several times that "Catalans demand the instruments of State."

"We are convinced that an independent Catalonia is perfectly viable economically," says Albert Carreras, Catalonia's finance secretary. "Rather, we question whether Spain is viable if Catalonia were independent."

Further muddying the Spanish political picture, pro-independence groups in Basque Country—another region where separatist sentiment is strong—won control of parliament there in elections Oct. 21.

Outside of Spain, Belgium faces the biggest separatist strain. There, a vibrant separatist movement in the wealthier, Dutch-speaking Flanders wants to cut ties with poorer, French-speaking Wallonia. For the moment, a political impasse has been avoided by formation of a coalition government that excludes the separatist N-VA party, even though it won the most votes.

Still, local elections this month only heightened tensions. The N-VA's leader, Bart de Wever, won the mayoral race in Antwerp, the country's second-largest city, and used his acceptance speech to call for more independence. "Your government does not have the support of Flanders," he told Prime Minister Elio Di Rupo, who hails from Wallonia.

In Italy, as in Spain, the regional spats are partly rooted in precrisis deals that gave regional governments more spending authority, but without more responsibility to raise revenue, says Alberto Alesina, a Harvard University economist. "All that people are talking about are enormous scandals and wasting of money at the regional level," says Mr. Alesina. In Italy, he says, the south is the bigger culprit but says the north is hardly blameless.

When the southern island of Sicily recently needed a €400 million transfer, or about $520 million, from the central government to continue paying its bills, Northern Italians grumbled about claims of payroll-padding there. They cited as an example the island's 27,000-strong corps of forest rangers hired during the fire season. Sicily is roughly the size of Massachusetts.

In Spain, financial woes are putting the union on the rocks. In August, Catalonia said it would seek a €5 billion bailout from the national government to make debt payments. Catalan officials say they would have no need for budget-cutting or bailouts if the central government were distributing tax revenue fairly. Some 43 cents of every euro Catalonia pays in taxes doesn't come home, according to data compiled by the Catalonia government.

Underlying the grievances is Catalans' image of themselves as a hardworking, thrifty people, "the Germans or Lutherans of Spain," says sociologist Enrique Gil Calvo, who was born in a neighboring northern region. Residents of Catalonia, about three-quarters of whom speak Catalan, are openly scornful of what they consider to be the indolence of southern Spaniards.

People from Madrid, for their part, poke fun at what they perceive to be Catalans' workaholic, stingy nature. The discovery of copper wire, one joke goes, came about as a result of two Catalans engaging in a tug of war over a penny.

The debate is no laughing matter to Catalan independentistas, as the secession supporters are known. They view themselves as patriots "just like George Washington," says Jaume Vallcorba, a businessman who heads a pro-independence group, Fundacio Catalunya Estat.

As an independent nation, Catalonia would have GDP per capita of €30,500, which would rank it seventh in the European Union, just behind Denmark and ahead of Germany, Mr. Vallcorba's group says in its presentation. He adds that Catalonia's exports to the rest of the world recently surpassed its sales to the rest of Spain.

Spain's prime minister, Mr. Rajoy, termed the Catalan independence push "madness of colossal proportions" in a speech this month.

In a briefing, a senior official in Madrid said that Catalans conveniently overlook help they get from the national government, such as the billions of euros being used to bail out a locally run savings bank.

Even some Catalans think the independentistas "are painting a picture that is prettier than the reality would be," says José María Gay de Liébana, an economist at the University of Barcelona who can trace his Catalan lineage to the Middle Ages. How, he asks, would Catalonia's already indebted and deficit-ridden government shoulder the added economic burden of opening embassies all over the world, creating its own police and customs agencies, and possibly an army?

Mr. Gay de Liébana adds that Catalonia would have to assume a reasonable share of Spain's national debt, perhaps as much as €200 billion. And he wonders whether the breakaway nation would ever be accepted into the EU, particularly in the face of certain opposition from Spain. "People would say we abandoned the ship when things got tough, instead of rowing together," he says.

As Spain's economy sinks further into recession, however, more people seem willing to take the plunge to independence. "There are many people who didn't favor independence a couple of years ago, who now view it as our only hope," says Laia Serrano, an economist who last year formed a nonprofit group, BarcelonActua, to help the growing number of recession victims.

On a recent Thursday night, she had set up a soup kitchen on a downtown Barcelona street where about 60 people lined up for meal boxes. One 78-year-old retiree said the situation reminded him of waiting for ration tickets in the hard years after the Spanish Civil War of the 1930s.

"Everyone says that independence will mean more jobs, so we have to support it," said another man, who said he was 35 years old and unemployed for four years.

Clashes with central authority are a recurring theme in Catalan history. In the 18th-century War of Spanish Succession, Spain's Bourbon king, Philip V, crushed Catalan forces who had cast their lot with his Austrian rival. Later, during the Civil War, Catalonia was a stronghold of resistance to another strongman, Gen. Francisco Franco, who would harshly suppress Catalan culture during his four-decade dictatorship.

Perhaps because Catalonia couldn't count on much support from central authorities, an aggressive spirit of entrepreneurship flourished. "Catalonia was globalized before anyone knew what that meant," says Salvador Cardús i Ros, a political writer. Even in the 19th century, he notes, a distinctively Catalan product, the tangy sausagebutifarra, was marketed abroad and manufactured with machinery from Germany, meat from Northern Europe and spices from Asia. Today Barcelona is home to international heavyweights such as Mango MNG Holding SL, the women's fashion retailer, and Grupo Planeta, the dominant publisher in Spain and Latin America.

Catalonia is a big tax contributor to the central government. But officials in Barcelona complain the money isn't redistributed fairly. The annual deficit between what Catalonia pays in taxes and what it gets back from Madrid represents about 8% of Catalonia's total output, roughly €16 billion, Catalonian officials calculate.

Catalans complain that, as a consequence of underinvestment, their local roads and infrastructure is inferior to that in poorer parts of Spain. "We have to choose between using public roads that are dangerous, or toll roads that are expensive," says Manel Xifra, president of Comexi, a packaging-machinery company with €100 million in revenue. In Catalonia, toll roads make up almost three times the proportion of the regional highway system as they do in the region of Madrid—a smaller geographical area, but one that is roughly similar in GDP and population.

He also complains that national officials have dallied for years in making a logistically important investment to connect Barcelona's port to its train line. And that Barcelona's airport provides too few international flights, forcing transfers when he travels for business.

Some Catalan executives, though, are worried about the impact of the independentistas on business. Jose Manuel Lara, the chief of Grupo Planeta, recently told a radio interviewer that much of the company's operations would need to be transferred out of Catalonia if it seceded, because it wouldn't make sense for a Spanish language publisher to be based in a region where Catalan was the official language.

To cover its expenses, Catalonia's government has ratcheted up the top marginal income-tax rate to 56%. That is the highest in Spain, and only a hair below Sweden, at 56.6%.

"You can't tolerate a Swedish level of taxes and African level highways," says Xavier Sala-i-Martín, a Catalan economist who teaches at Columbia University and who says he is "pro choice," supporting the Catalans' effort to determine their future democratically.

Catalonia's frustrations surged to the forefront during a Sept. 11 independence rally that drew more than one million demonstrators. Rosa Maria Sastre, an 81-year-old retiree, was too infirm to join the independentistas, so her granddaughter marched carrying a poster-size photograph of Mrs. Sastre. "We'd been waiting a long time to send a message," Mrs. Sastre says.

On both sides, ardor is rising. The mayor of the Catalan city of Vic recently draped the red-and-yellow striped Catalan banner on the balcony of the historic municipal hall there. A few nights later, vandals climbed up and burned the flag to cinders.—Frances Robinson and David Román contributed to this article.

Write to Matt Moffett at matthew.moffett@wsj.com

A version of this article appeared October 29, 2012, on page A1 in the U.S. edition of The Wall Street Journal, with the headline: Europe's Crisis Spawns Calls For a Breakup—Of Spain.

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