Spain’s economy goes from existential threat to existential threat. It all started in the 90s with the country betting its future on the construction sector and then running out of credit by 2008. This crisis left Spain with a quarter of its population trained to do something for which there was no more demand. The crisis was aggravated by the socialist party being in denial which led to runaway deficits of over 10% of GDP. This accelerated indebtedness was combined with poor quality bank balance sheets, the result of holding so many devalued real estate assets. Fortunately Spain avoided bankruptcy and default thanks to the EU bailout and the economy started to recover. But the economic disaster, the great Spanish recession, the 50% youth unemployment opened the door to two populist movements. One is Podemos, the Syriza style Spanish fantasy that says that we can spend much more, renegotiate our debt, and somehow get away with default. This movement was extremely successful and recently won the cities of Madrid and Barcelona. And  together with this populism another flavor of blame others for your shortcoming movement emerged in force in Catalonia, the independence movement rose blaming all the economic ills of the region on Spain. This is absurd because Catalonia has been managed for generations by politicians who are as corrupt and as incompetent as the rest of Spain, went bankrupt borrowing more than any other region, and was actually saved by Spain. So when cornered, the Catalan leadership played the independence card, always a powerful way to draw attention away from you.

Spain first almost defaulted because of runaway deficits, then flirted again with financial disaster electing pro default Podemos, and now the newly gained still fragile stability is threatened by pro independence candidates in Catalonia. These leaders age that they will use the threat of not paying the 20% of debt corresponding to Catalonia as a means to gain independence.

What is the solution? A well designed independence referendum that clearly explains the consequences of independence and allows Catalans to decide on their future. The results would likely be the same as in the UK but if they aren’t nothing much will happen to Spain if Catalans become independent with their own regional debt plus their share of the national debt. But Rajoy’s hard line and the Catalans blame it all on Spain strategies are made for each other, and may result in chaos and indeed another possible near default.

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