Spain's next crisis: Regional splits?

People hold pro-independence Catalan flags in a demonstration calling for independence.

Story highlights

  • Catalonia has requested a 5 billion euro ($6.3 billion) bailout from the Spanish government
  • Galicia and Catalonia will hold regional elections in October and November respectively
  • Investors are wary that Spain could soon need financial support from European bailout funds

Spain faces a test of unity over the coming months as regional elections in Catalonia and Galicia threaten to destabilize the debt-ridden nation.

With unemployment at a record 25%, borrowing costs spiraling and debt repayments looming, Spain is emerging as the possible next candidate to tap its eurozone peers for financial help.

But Spain stands apart from other nations forced to seek aid. As the eurozone's fourth largest economy -- making up around 11% of the currency bloc's gross domestic product -- its financial problems are now being exacerbated by defiance from some of its 17 disparate regions.

Catalonia, a semi-autonomous region in the Northeast, represents one fifth of Spain's economy and the protestors are now actively calling for a split from central government.

Such agitations -- coming as they are in the midst of the country's debt crisis -- threaten to undermine Rajoy's attempts to pull Spain from its financial mire.

Spain struggles to deal with austerity
Spain struggles to deal with austerity


    Spain struggles to deal with austerity


Spain struggles to deal with austerity 03:34
Austerity leads to health cuts in Spain
Austerity leads to health cuts in Spain


    Austerity leads to health cuts in Spain


Austerity leads to health cuts in Spain 02:46
Spaniards protest austerity plans
Spaniards protest austerity plans


    Spaniards protest austerity plans


Spaniards protest austerity plans 02:49

Nicholas Spiro, managing director of Spiro Sovereign Strategy told CNN that the sub sovereign debt problems are a "hot button issue."

For Rajoy, the push back "accentuates [the problems], making it more likely Spain will be forced to call on the European Stability Mechanism [Europe's permanent bailout fund]," Spiro said.

But Antonio Barroso, a Europe analyst at Eurasia Group, told CNN that despite the protests the likelihood of a Catalan separation is "extremely low."

According to Barroso, the ruling political party in Catalonia, Convergence and Union (CiU) led by Catalan President Artur Mas, has used the eurozone debt crisis and regional elections set for November 25 to openly call for sovereignty.

Barroso said: "It is true that public support for independence has been on the rise. But the Catalan government is implementing very tough financial adjustments and therefore the [Catalan] President, Artur Mas, is capitalizing on nationalist sentiments to shift the burden of responsibility onto the central government."

Last week Mas met with the Rajoy in Madrid to try and negotiate a new fiscal arrangement, whereby Catalonia would manage its own taxes and transfer less money to other regions in Spain. But talks stalled.

Even as Catalonia -- with its own language and culture -- strives for autonomy, in August, the CiU requested a 5 billion euro ($6.3 billion) bailout from the Spanish government. The request came after Rajoy announced plans for a credit line to be extended to Spain's 17 regions.

But, according to Barroso, Catalonia is not Rajoy's main concern. Instead Spain's leader is focusing on regional elections in Galicia in October -- a region in North-western Spain -- where his party is likely to win and where the policies could create a model for the rest of Spain.

Barroso said: "The key area for Rajoy is Galicia because his party has an absolute majority. He wants to use Galicia as an example of how his policies are working because it is one of the healthiest region in fiscal terms."

Spain has already requested up to a 100 billion euro ($128 billion) aid package for its ailing banks, which are still struggling to grapple with the property collapse in 2008.

Pressure from European partners and investor fear over further credit downgrades for Spain could undo the calming effect of European Central Bank President Mario Draghi's announcement on September 6. Draghi said the bank would be willing to purchase sovereign bonds of fiscally-frail countries such as Spain and Italy, if these indebted nations request a bailout.

But Barroso noted it was difficult to place a time frame on Spain seeking any external aid. He added: "For Rajoy, he has said 'only if market pressure increases' and you see how yields are going up again. I think market pressure is the ultimate factor that would cause Rajoy to apply."

      Europe's financial crisis

    • German Chancellor Angela Merkel talks with Finance Minister Wolfgang Schaeuble during a session at the Bundestag (lower house of parliament) on June 25, 2013 in Berlin.

      Schaeuble: 'Don't see' bailouts

      German Finance Minister Wolfgang Schaeuble says the eurozone's problems are not solved, but "we are in a much better shape than we used to be some years ago."
    • IBIZA, SPAIN - AUGUST 21:  A man dives into the sea in Cala Salada beach on August 21, 2013 in Ibiza, Spain. The small island of Ibiza lies within the Balearics islands, off the coast of Spain. For many years Ibiza has had a reputation as a party destination. Each year thousands of young people gather to enjoy not only the hot weather and the beaches but also the array of clubs with international DJ's playing to vast audiences. Ibiza has also gained a reputation for drugs and concerns are now growing that the taking and trafficking of drugs is spiralling out of control.  (Photo by David Ramos/Getty Images)

      Spain keeps partying

      Summer could not have come soon enough for Lloret de Mar, a tourist resort north of Barcelona. Despite the country's troubles, it's partying.
    • The Euro logo is seen in front of the European Central bank ECB prior to the press conference following the meeting of the Governing Council in Frankfurt/Main, Germany, on April 4, 2013.

      OECD: Slow recovery for Europe

      The global recovery has two speeds: That of the stimulus-fed U.S. and that of the austerity-starved eurozone, according to a new report.
    • The flags of the countries which make up the European Union, outside the European Parliament in Strasbourg, France.

      Europe's new threat: Slow decay

      The "rich man's club" of Europe faces economic decay as it struggles to absorb Europe's "poor people", according to economic experts.
    • Packed beaches and Brit pubs? Not necessarily. Here's what drew travelers to one of Spain's most beautiful regions in the first place

      Spain aims for big tourist summer

      Spain's economic crisis is in its sixth straight year yet tourism, worth 11% of GDP, is holding its own, one of the few bright spots on a bleak horizon.
    • Photographer TTeixeira captured these images from a May Day protest in Porto, Portugal, Wednesday by demonstrators angered by economic austerity measures. "People protested with great order, but showed discontent against the government who they blame for this economic crisis," she said. "They want the government to resign and the Troika [European Commission, International Monetary Fund and European Central Bank] out of this country."

      May Day protesters flood Europe

      As European financial markets close for the spring celebration of May Day, protesters across Europe and beyond have taken to the streets to demonstrate.
    • Croatian Prime Minister Zoran Milanovic delivers a speech in Mostar, on April 9, 2013. Prime Ministers from Bosnia's neighboring countries arrived in Bosnia with their delegations to attend the opening ceremony of "Mostar 2013 Trade Fair".

      Croatia PM: We need Italy to recover

      As Croatia prepares to enter the 27-nation European Union, the country's Prime Minister says Italy must return to being the "powerhouse of Europe."
    • Anti-eviction activists and members of the Platform for Mortgage Victims (PAH) take part in a protest against the government's eviction laws in front of the Popular Party (PP) headquarters in Mallorca on April 23, 2013.

      Spain's unemployment hits record

      Spain's unemployment rate rose to a record high of 27.2% in the first quarter of 2013, the Spanish National Institute of Statistics said Thursday.
    • People protest against the Spanish laws on house evictions outside the Spanish parliament on February 12, 2013 in Madrid, Spain.

      Welcome to Madrid: City of protests

      Spain has seen hundreds of protests since the "Indignados" movement erupted in 2011, marches and sit-ins are now common sights in the capital.