Politics

Divided and Conquered, Catalonia Weighs the Damage

It might look over, but the Spanish region’s independence bid has long-lasting repercussions.
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Pro-independence supporters gather in on Friday, Oct. 27, 2017.

Photographer: Angel Garcia/Bloomberg

The drama in Catalonia may have reached its epilogue, but the economic and political consequences are still to emerge for a region Spain could never afford to let go.

For now, the separatist leadership has been deposed, a would-be European republic snuffed out and a potential bank run avoided. 

Spanish Prime Minister Mariano Rajoy has gone from lame duck premier dogged by a party corruption scandal to the country's unlikely savior. Catalan President Carles Puigdemont has painted himself as a victim of the vengeful state after fleeing to Brussels to avoid arrest. He remained in Belgium on Wednesday. 

Yet that winner-and-loser narrative masks a delicate balance. Catalonia's 7.5 million people remain as torn as ever in the stop-start push for their own state since the death of General Francisco Franco four decades ago. A tumultuous month started with an illegal independence referendum on Oct. 1 that police tried to forcibly extinguish. It culminated with a loss of autonomy that’s cherished even by those who want to remain part of Spain.

Carles Puigdemont arrives for a news conference at the Press Club in Brussels on Tuesday.
Photographer: Dario Pignatelli/Bloomberg

Businesses are taking a hit as people raise questions over Barcelona’s sweet spot as a tourism and investment destination. Elections are set for a few days before Christmas and opinion polls reflect the entrenched divide between pro-independence groups and those loyal to Madrid. Spain's two main political parties agreed to set up a committee that will look at constitutional reform, though it’s unlikely to be enough to satisfy Catalan separatists.

“We have won the first battle for the return of peace and common sense to Catalonia, but it's going to take a long time to return to something like normality,” said Felix Revuelta, chairman of nutritional products company Naturhouse, which moved its headquarters to Madrid from Barcelona as the separatist movement gained momentum. “If the population decides in favor of unity, the problem may start to solve itself. It would be just a beginning because the social division is still there.”

Economy Hit

The government in Madrid has been talking up the damage the separatists have caused to the region's $250 billion economy, one that's so intertwined with the rest of Spain.

Barcelona’s Chamber of Commerce cut its growth estimates for Catalonia to 2.5 percent from 2.7 percent for next year. Tourism may fall by about 20 percent, according to business group Aecoc, which represents more than 28,000 companies. Hotel occupancy rates in Barcelona fell to about 80 percent as tourists thought twice before booking, a local trade association said last week.

Foreign buyers have slowed down the purchase of real estate in Catalonia and the level of property for sale has increased by about 50 percent in some popular tourist beach destinations south of Barcelona, said Fernando Encinar, a co-founder of Idealista, Spain’s largest property website.

A child wearing a Catalan flag on the Gran Via Avenue in Barcelona.
Photographer: Angel Garcia/Bloomberg

“The separatists’ fad for independence is going to be an expensive one for everybody,” said Juan Ignacio Sanz, a professor of banking and stock markets at Esade business school in Barcelona.

One example is whether the city can win the European Medicines Agency, the continent's drug regulator, from London after Britain leaves the European Union, he said.

Hundreds of companies left Catalonia by shifting their legal bases to ensure they wouldn't come under the auspices of a new Catalan Republic. Among them was CaixaBank SA, the largest bank in the region. The Caixa Group owns stakes in companies including the former Spanish phone monopoly Telefonica SA, oil producer Repsol SA and energy distributor Gas Natural SDG SA. 

“We didn't decide to move to Madrid overnight and we won't decide to go back to Catalonia overnight,” said Carlos Buesa, chairman of the biopharmaceutical company Oryzon Genomics SA, which announced the decision to move its headquarters from the Catalan to the Spanish capital on Oct. 3.

The headquarters of CaixaBank SA in Barcelona.
Photographer: Angel Garcia/Bloomberg

In one sign of a slow reversal, Freixenet SA, the maker of the sparkling wine cava, decided to keep its headquarters in Catalonia as a result of the Spanish government's move to seize control of the region. 

Jordi Alberich, director general of Barcelona-based business association Cercle d’Economia, said the hope is that economy will start to put the events behind it.

“Walking around Barcelona, the atmosphere is very different from what it was last week,” he said. “The hope is that the economic situation can start returning to something like normality.”

Right to Decide

Politically, that might take longer.

The crux of the argument is still whether Catalans should be able to decide their own future. A poll on Tuesday showed 40 percent of people backing breaking away from Spain, but a survey the day earlier showed 76 percent of respondents said Catalonia should at least be allowed an official independence referendum, like the one in Scotland in September 2014.

Behind the rhetoric of autonomy versus unity lies the real bone of contention: money and who controls the purse strings.

Catalonia makes up a fifth of the Spanish economy and has a gross domestic product bigger than Portugal, Finland or Greece. It’s a net contributor to the Spanish budget and, unlike in the separatist hotbed of the Basque region, taxation goes to Madrid for dispersal.

Rajoy speaks during a news conference at the Moncloa Palace in Madrid.
Photographer: Angel Navarrete/Bloomberg

Rajoy, 62, showed himself to be an adept short-term tactician. After images of violence were broadcast worldwide following a clumsy deployment of national police to break the referendum on Oct. 1, he managed to strengthen his hand and back the Catalans into a corner. He kept the opposition Socialists onside for his plan to sweep out the Catalan government while his diplomats ensured the EU supported his tough line.

That said, he’s yet to show himself as a longer-term strategist for the region after his takeover following Friday’s declaration of independence.

Puigdemont, 54, continued to step up the divisive rhetoric on Tuesday, accusing Spain of having a vengeful and politicized justice system and a government that was ready to use violence against its people.

Hours later, he was summoned to court in Madrid. Some of his deputies returned to Barcelona, though Puigdemont wasn’t among them. His lawyer told the Associated Press on Wednesday that the ousted Catalan leader should be questioned in Brussels and wouldn’t be returning to Madrid. 

While Puigdemont shied away from resisting Spain's takeover -- he said he did so to keep people safe -- some of his supporters were disappointed. They had been planning resistance and were surprised when he left for Brussels. Left behind is Oriol Junqueras, the number two of the regional government who backed independence long before Puigdemont’s party was converted to the cause. It’s not yet clear how the regional election will reshape the independence camp’s fault lines.

And while Rajoy has won the battle, he and his allies have done nothing to address the root causes of separatist anger. “He didn’t conquer any hearts and minds,” said Joe Haslam, a professor at Instituto de Empresa business school in Madrid.

— With assistance by Thomas Gualtieri, and Emma Ross-Thomas

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