Spain's next threat: Losing 20% of its economy

Story highlights

  • Catalans go to the polls on Sunday November 25 in a vote that trigger a referendum for independence
  • Catalonia is home to tourist attractions -- Barcelona Football Club and the Gaudi House Museum
  • The CiU is raising the debate on sovereignty at a time of public frustration over taxes in Catalonia

It's September 11, 2012. The National Day of Catalonia. And an estimated 1.5 million people are on the streets of Barcelona waving banners "Catalonia -- The next state in Europe" and "Independencia."

Separatist Catalans are calling for sovereignty from Madrid and the rule of the conservative Popular Party, led by Prime Minister Mariano Rajoy.

Losing 20% of the economy is the last thing the Spanish government needs right now. But if those calling for independence get their way, that could be exactly what happens when Catalans go to the polls this weekend.

Catalonia -- a region in the northeast of Spain and home to global brands and tourist attractions including Barcelona Football Club and the Gaudi House Museum -- represents one fifth of the Spanish economy.

The Catalonia issue comes at an inconvenient time for Rajoy's government, which opposes any talk of independence. Spain, part of the eurozone mainstay, is grappling with unsustainable borrowing costs and a soaring public deficit while trying to placate public anger over a lack of jobs and stringent austerity.

Out of the hardship, regional disputes in northern Spain have started to resurface, particularly in Catalonia. Economists at Deutsche Bank say the political turmoil in such a prosperous region could be the catalyst that forces the Spanish central government into seeking aid from Europe's permanent bailout fund, the European Stability Mechanism.

As the industrial heartbeat of the eurozone's fourth largest economy, Catalonia is the most important economic region in Spain. Situated on the Mediterranean and bordering France, the area is home to seven million people and made up of four provinces: Barcelona, Lleida, Tarragona and Girona.

Calls for independence

The debate over Catalan independence is not new. Strained tensions between Madrid and Catalonia have been around for centuries.

Cashing in on reusable diapers
Cashing in on reusable diapers

    JUST WATCHED

    Cashing in on reusable diapers

MUST WATCH

Cashing in on reusable diapers 04:13
PLAY VIDEO

But Salvador Giner, sociologist and president of the Intitut d'Estudis Catalans, told CNN the vehemence of the debate fluctuates depending on the political and economic zeitgeist.

Spain's indebted regions
Spain's indebted regions

    JUST WATCHED

    Spain's indebted regions

MUST WATCH

Spain's indebted regions 03:05
PLAY VIDEO

Artur Mas, head of the Catalan government, has announced a snap regional election on November 25. If his nationalist CiU party win, a referendum on Catalan independence is expected to follow shortly after, according to Gilles Moec, co-head of European economic research at Deutsche Bank.

Spanish protesters gather at courthouse
Spanish protesters gather at courthouse

    JUST WATCHED

    Spanish protesters gather at courthouse

MUST WATCH

Spanish protesters gather at courthouse 01:23
PLAY VIDEO

Giner told CNN that a victory for Mas and CiU should be considered a certainty. He said: "The socialist party in Catalonia is in disarray. He [Mas] knows that he'll win hands down."

However, Xavier Sala-i-Martin, a professor in economics at Columbia University, says that Mas is simply "following the crowd" on calls for sovereignty.

He said: "Up until September 11 his strategy was to go to Madrid and ask for a better financial deal or "fiscal pact" as he called it. I guess that the massive demonstrations convinced him that his people no longer want a better financial deal from Spain. They want independence. And he joined the bandwagon... Mas doesn't lead. He follows."

Catalonia's nearby regions, the Basque country, and Galicia in the Northwest of Spain also have self-governance mandates under the Spanish Constitution of 1978. And while not wholly independent from Spanish state law, they are still considered autonomous.

On October 21, both the Basque country and Galicia held regional elections. Rajoy received a boost in his home region of Galicia where his centre-right party won a majority of the parliamentary seats against two nationalist groups and a socialist party. The win represented support for Rajoy's government as it tries to reduce Spain's deficit through a rigorous austerity program.

The Basque elections presented a very different outcome. The nationalist party -- known as PNV [Partido Nacionalista Vasco] won 27 seats while the pro-independence party, Bildu, secured 21 and Rajoy's Popular Party won just 10 seats of the 75.

For over 50 years, the Basque region was home to a paramilitary group known by the acronym "ETA" and in English "Basque Homeland and Freedom."

Spain protests turn violent
Spain protests turn violent

    JUST WATCHED

    Spain protests turn violent

MUST WATCH

Spain protests turn violent 01:37
PLAY VIDEO

The terrorist group -- formed in 1958 -- carried out a number of attacks on Spanish citizens in the name of sovereignty and but declared a permanent cease-fire last year. Giner says their activities failed to help the Basque country's cause and he would like to see Catalan independence achieved peacefully.

Does Spain need a bailout?
Does Spain need a bailout?

    JUST WATCHED

    Does Spain need a bailout?

MUST WATCH

Does Spain need a bailout? 02:02
PLAY VIDEO

He told CNN: "I believe full sovereignty for Catalonia is absolutely possible and we can achieve this in a civilized manner, without the use of terrorist groups."

Spain's Red Cross focuses on unemployed
Spain's Red Cross focuses on unemployed

    JUST WATCHED

    Spain's Red Cross focuses on unemployed

MUST WATCH

Spain's Red Cross focuses on unemployed 02:31
PLAY VIDEO

Spain's austerity drive

Today, Spain is suffering. The Madrid-based Popular Party is introducing deeply unpopular policies. These include a fiscal cocktail of severe budget cuts and rising taxes on a population already afflicted by the highest rate of unemployment in Europe at 25.1%, according to Eurostat figures.

The CiU is raising the debate on sovereignty at a time of public frustration over taxes in Catalonia. Moec said in a note that the CiU blames the central government for disproportionate taxes levied at Catalans -- with the wealth then re-distributed to Spain's poorer regions.

Salvador Giner says he understands the need for Spanish solidarity and to help struggling regions, but says a large proportion of the revenue generated from taxes is not being reinvested in Catalonia.

He added: "Catalans are fed up with the current situation on taxes. Catalonia gets back only about 19% to 21% of our contribution to the central government."

According to Sala-i-Martin, taxes and regional distribution of wealth are a large part of the problem for Catalans -- but the biggest tensions are steeped in the country's modern history.

Catalonia's past

After the country's military dictator, Franco, died in 1975, Catalans thought that they could be part of a country that recognized its different cultures, languages and nations, Sala-i-Martin said. Initially, that looked possible.

But then: "In 1981, after the military coup attempt, the monster woke up," the Columbia professor added. "All the Spanish institutions reinterpreted the constitution in ways that did not allow Catalunya to feel comfortable within that country."

In 2010, the Spanish constitutional courts ruled that although the term "nation" could be applied to Catalonia, the description had no legal validity.

The recession and financial crisis of 2008 then exacerbated the tensions between Catalonia and Madrid, Sala-i-Martin said.

This forced the Catalan administration to make a plea to the central government in Madrid for a regional bailout of five billion euros from an 18 billion euro credit line set up for debt-ridden Spanish regions.

Employment in Catalonia is also causing a political headache for the CiU and the national governing Popular Party. According to a report by the Organization of Cooperation and Development [OECD], unemployment in Catalonia has jumped by 8.6% to 16.3%, since the collapse of the housing market and the global financial crisis began in 2008.

Salvador Giner says the unemployment rate is in part due to immigrants -- largely from Southern Spain and North Africa -- settling in the region. The situation has been aggravated by an extended period of low economic growth.

The Catalan people are becoming steadily disillusioned with the economic management from Madrid, says Sala-i-Martin. He said: "If Spain came back today with an offer to solve the financial problems, most Catalans would still like to be given the right to vote for independence."

        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.