Catalan poll highlights EU challenges

One year ago, the European Union seemed to be on the brink. It had suffered an annus horribilis of political shocks, with three major elections looming on the horizon. With each vote, the EU has stepped back from the edge of further destruction. In the shadow of Brexit, the bloc of 27 now feels collectively secure. But the situation has forced it to look hard at itself and become more disciplined, more clear about its own purpose.

For EU member states the need for solidarity has never been more urgent. Thursday’s elections in Catalonia highlighted the vast challenges ahead. Spain’s internal conflicts show how hard it is for a supranational entity like the EU to maintain its unity when its governments are wrestling with such polarised electorates. The vote also highlighted the uphill battle the EU faces in an age of digital warfare, with Russian propaganda intent on fracturing the bloc. In the end, the pro-independence parties’ narrow victory sent shock waves to Madrid, but they were unable to capture an absolute mandate. In the interests of stability, the Spanish government may well make further concessions, but the visceral nature of the divisions in Catalonia will make them hard to close.

Polls show the contest between pro-secessionist and unionist (also known as constitutionalist, pro-Spain) parties is too close to call, leading to a possible hung parliament where no one party has a majority.

"It's crucial to look at who will have a majority and it looks like no one will have a proper majority," Borja Lasheras, policy fellow at the European Council on Foreign Relations and the director of the Madrid Office, told CNBC Tuesday.

"You see a very divided society in Catalonia with extremely competing narratives and Catalonia will remain deeply fractured (whatever the result)."

The election comes after a period of quiet following the chaotic and fast-moving scenes in October when the regional government declared independence following a referendum, held in defiance of Spain's attempts to ban the vote, at the start of October.

Political crisis ensued with the Spanish government imposing direct rule on Catalonia, ousting the Catalan president and government and calling fresh elections. What's more, several pro-independence politicians including Catalan President Carles Puigdemont, fled to Belgium when Spain issued a warrant for their arrest on serious sedition charges.

Puigdemont remains in self-imposed exile in Belgium where he has campaigned ahead of the vote. His former deputy, Oriol Junqueras, is contesting the election (as leader of the alliance between the Catalan Republican Left party - the ERC) from prison as he too faces sedition charges and has been refused bail by a judge who feared he would repeat his secessionist activities. Catalonia's elections are important because more political uncertainty could weigh on Spain's recently bright economic outlook. The Bank of Spain said last week that it saw gross domestic product growing 3.1 percent in 2017 but forecast a rise of 2.4 percent in 2018. The central bank acknowledged that Catalonia was a risk surrounding its projections, noting that "the political tension in Catalonia could potentially affect agents' confidence and their spending decisions and financing conditions."

In a note looking at the economic impact of the Catalan election, Rabobank's rates strategists Richard McGuire, Lyn Graham-Taylor and Matt Cairns, explained what could happen if pro-independence parties achieved a majority.

"(In the) short-term, this (result) would be unlikely to herald any really significant spread widening (in terms of borrowing costs) for Spain, with the reasoning behind this being that the national government has already demonstrated that it will not allow Catalonia to make a unilateral decision to separate from the country," they said in a note on Tuesday.

However, the strategists said that a pro-independence majority, in the long term, meant "heightened uncertainty will remain about what the future holds for the structure of Spain — with this likely (to) have a dampening impact on growth. This is key because it is the growth rate that is the real standout bright spot for Spanish debt metrics," the strategists said.

They added that even if pro-independence parties were a minority in the parliament, "it still seems reasonably likely that 2018 will see some move by the Spanish government to try and deal with some of the grievances raised by Catalonia."

Lasheras told CNBC that it was likely that the Spanish government would implement some kind of constitutional reform to appease secessionists in Catalonia, but this would happen over the medium term and it would not be a "panacea" for the region where there is both strong pro-independence and pro-unity feeling.

The writer is deputy director of Demos–a British think tank

 

"The government of Mariano Rajoy is very keen on making some concessions on financial transfers (in terms of Catalan taxes that go to Madrid) but they're putting the brakes on constitutional reform," he said. "I see it happening in the mid-term, not short-term, there will be signs along that way. Catalonia will remain deeply fractured I'm afraid," he added.

Ironically, the mood in Brussels this year has largely been one of galvanised momentum. The Dutch elections provided the spark, but it was French President Emmanuel Macron’s victory in May that permitted a definitive thrust forward, stunning observers with the success of his unashamedly pro-European campaign. He injected confidence into the bloc while strong Eurozone growth raised hopes for economic renewal after a decade of bleak austerity. These encouraging foundations emboldened the European Commission this week to finally pull the trigger on Article 7 of the Lisbon Treaty against Poland. Article 7 allows the EU to sanction and punish member states who seriously and persistently breach its values. Poland stands accused of subverting constitutional and media freedoms, including by an assault on its own judiciary. Invoking Article 7 is a declaration of strength from the EU, which, were it feeling less confident, might not be willing to stand on its principles in this way.

But there is nothing inevitable about the force behind the EU’s positive trajectory. For every risk evaded, there has been a shaky step sideways. Spain is not the only member state grappling with a fragmented electorate. Germany has spent a record number of days without a formal government, as the two major parties mull the risks of embracing another coalition. Many in Brussels are also keeping an eye on Italy, where maverick populists are leading the polls ahead of elections next Spring. The EU cannot thrive if it is as only as strong as its last election. A holding pattern won’t be enough to respond to the threats that menace its door. Longer-term structural challenges like an ageing population, global warming and the next wave of labour market upheavals loom large. It is also foolish to forget the millions of Europeans who voted for hard Right and Left candidates and for separatist parties — nor their grievances, which may only congeal and harden if not addressed.

The EU’s future depends on the stability and efficacy of national governments, whose capacity to resolve deep cultural cleavages is increasingly questionable. Only the cooling of internal tensions will make the whole bloc safe.

 

Catalan poll highlights EU challenges

One year ago, the European Union seemed to be on the brink. It had suffered an annus horribilis of political shocks, with three major elections looming on the horizon. With each vote, the EU has stepped back from the edge of further destruction. In the shadow of Brexit, the bloc of 27 now feels collectively secure. But the situation has forced it to look hard at itself and become more disciplined, more clear about its own purpose. For EU member states the need for solidarity has never been more urgent. Thursdays elections in Catalonia highlighted the vast challenges ahead. Spains internal conflicts show how hard it is for a supranational entity like the EU to maintain its unity when its governments are wrestling with such polarised electorates. The vote also highlighted the uphill battle the EU faces in an age of digital warfare, with Russian propaganda intent on fracturing the bloc. In the end, the pro-independence parties narrow victory sent shock waves to Madrid, but they were unable to capture an absolute mandate. In the interests of stability, the Spanish government may well make further concessions, but the visceral nature of the divisions in Catalonia will make them hard to close. Polls show the contest between pro-secessionist and unionist (also known as constitutionalist, pro-Spain) parties is too close to call, leading to a possible hung parliament where no one party has a majority. Its crucial to look at who will have a majority and it looks like no one will have a proper majority, Borja Lasheras, policy fellow at the European Council on Foreign Relations and the director of the Madrid Office, told CNBC Tuesday. You see a very divided society in Catalonia with extremely competing narratives and Catalonia will remain deeply fractured (whatever the result). The election comes after a period of quiet following the chaotic and fast-moving scenes in October when the regional government declared independence following a referendum, held in defiance of Spains attempts to ban the vote, at the start of October. Political crisis ensued with the Spanish government imposing direct rule on Catalonia, ousting the Catalan president and government and calling fresh elections. Whats more, several pro-independence politicians including Catalan President Carles Puigdemont, fled to Belgium when Spain issued a warrant for their arrest on serious sedition charges. Puigdemont remains in self-imposed exile in Belgium where he has campaigned ahead of the vote. His former deputy, Oriol Junqueras, is contesting the election (as leader of the alliance between the Catalan Republican Left party - the ERC) from prison as he too faces sedition charges and has been refused bail by a judge who feared he would repeat his secessionist activities. Catalonias elections are important because more political uncertainty could weigh on Spains recently bright economic outlook. The Bank of Spain said last week that it saw gross domestic product growing 3.1 percent in 2017 but forecast a rise of 2.4 percent in 2018. The central bank acknowledged that Catalonia was a risk surrounding its projections, noting that the political tension in Catalonia could potentially affect agents confidence and their spending decisions and financing conditions. In a note looking at the economic impact of the Catalan election, Rabobanks rates strategists Richard McGuire, Lyn Graham-Taylor and Matt Cairns, explained what could happen if pro-independence parties achieved a majority. (In the) short-term, this (result) would be unlikely to herald any really significant spread widening (in terms of borrowing costs) for Spain, with the reasoning behind this being that the national government has already demonstrated that it will not allow Catalonia to make a unilateral decision to separate from the country, they said in a note on Tuesday. However, the strategists said that a pro-independence majority, in the long term, meant heightened uncertainty will remain about what the future holds for the structure of Spain with this likely (to) have a dampening impact on growth. This is key because it is the growth rate that is the real standout bright spot for Spanish debt metrics, the strategists said. They added that even if pro-independence parties were a minority in the parliament, it still seems reasonably likely that 2018 will see some move by the Spanish government to try and deal with some of the grievances raised by Catalonia. Lasheras told CNBC that it was likely that the Spanish government would implement some kind of constitutional reform to appease secessionists in Catalonia, but this would happen over the medium term and it would not be a panacea for the region where there is both strong pro-independence and pro-unity feeling. The writer is deputy director of Demosa British think tank The government of Mariano Rajoy is very keen on making some concessions on financial transfers (in terms of Catalan taxes that go to Madrid) but theyre putting the brakes on constitutional reform, he said. I see it happening in the mid-term, not short-term, there will be signs along that way. Catalonia will remain deeply fractured Im afraid, he added. Ironically, the mood in Brussels this year has largely been one of galvanised momentum. The Dutch elections provided the spark, but it was French President Emmanuel Macrons victory in May that permitted a definitive thrust forward, stunning observers with the success of his unashamedly pro-European campaign. He injected confidence into the bloc while strong Eurozone growth raised hopes for economic renewal after a decade of bleak austerity. These encouraging foundations emboldened the European Commission this week to finally pull the trigger on Article 7 of the Lisbon Treaty against Poland. Article 7 allows the EU to sanction and punish member states who seriously and persistently breach its values. Poland stands accused of subverting constitutional and media freedoms, including by an assault on its own judiciary. Invoking Article 7 is a declaration of strength from the EU, which, were it feeling less confident, might not be willing to stand on its principles in this way. But there is nothing inevitable about the force behind the EUs positive trajectory. For every risk evaded, there has been a shaky step sideways. Spain is not the only member state grappling with a fragmented electorate. Germany has spent a record number of days without a formal government, as the two major parties mull the risks of embracing another coalition. Many in Brussels are also keeping an eye on Italy, where maverick populists are leading the polls ahead of elections next Spring. The EU cannot thrive if it is as only as strong as its last election. A holding pattern wont be enough to respond to the threats that menace its door. Longer-term structural challenges like an ageing population, global warming and the next wave of labour market upheavals loom large. It is also foolish to forget the millions of Europeans who voted for hard Right and Left candidates and for separatist parties nor their grievances, which may only congeal and harden if not addressed. The EUs future depends on the stability and efficacy of national governments, whose capacity to resolve deep cultural cleavages is increasingly questionable. Only the cooling of internal tensions will make the whole bloc safe.