I’M WRITING this Barcelona at what we are not allowed to call the Catalan independence referendum. From a mixture of hubris and stupidity, Madrid has decided to stop the citizens of its most economically dynamic region from expressing their democratic will.
The Spanish constitutional court has even forbidden a “consultative” vote, which is why local civil servants administering tomorrow’s poll are “volunteering” their services.
I mention this because the interplay between democracy and economics is now central to what happens next in the floundering eurozone. The Catalan desire to break with the metropolitan government is in reality a protest against misjudged and excessive austerity policies. These policies emanate ultimately not from Madrid but from the Bundesbank, Germany’s uber-conservative central bank. Unless the Bundesbank recovers sanity, it will be more than the Catalans who revolt.
Of course, the right-wing Popular Party government in Madrid can claim some economic success with austerity. While other big eurozone economies – including Germany – have gone into reverse, Spain is growing, even if slowly. Output in the third quarter was up half a point, driven by a strong summer tourist season and cheaper borrowing costs thanks to the cheap money policy being championed by Mario Draghi, the Italian boss of the European Central Bank (ECB).
Unfortunately, with the tourists off home to Scandinavia, Spanish unemployment is up again and now stands at 4.5 million. Worse, this week saw the Bundesbank launch a major attack on Draghi and his attempt to introduce a European version of quantitative easing – code for reversing Berlin’s austerity policies. This may explain why Draghi has become a local hero in Catalonia. The local TV stations keep playing a long interview with him (in sub-titled English). I can’t remember the ECB president ever being interviewed on BBC Scotland.
The real democratic crunch in Europe will take place in Frankfurt on the ECB’s ruling council, not in Catalonia. Sensibly, Draghi has led the money markets to believe the ECB will pump enough liquidity into the eurozone economy to stave off Japanese-style deflation. But this is not what the Bundesbank wants.
While new party wants to follow Blum lead
Surprisingly, the big news in Spain, particularly on the business pages, is not Sunday’s Catalan referendum but the spectacular rise in the opinion polls of Podemos (“We can!”).
This anti-austerity, anti-corruption party was founded only ten months ago but now threatens to overtake the dominant conservative and labour parties nationally. Think of Podemos as popular Spain’s response to Bundesbank austerity and deflation. Podemos has come from nowhere to top the polls at 28 per cent. It is not anti-euro. But it opposes what it calls Spain’s “internal devaluation” (aka spending cuts) at the behest of Berlin. Podemos wants a €145 billion (£114bn) reflation of the Spanish economy, based on establishing a universal basic income. Don’t scoff. This is roughly what Leon Blum’s Popular Front did in France after the 1936 General strike when it raised wages significantly during the middle of the Depression.
Actually, that turned out to be quite positive for the French economy – at least till the German panzers arrived four years later. On the other hand, Blum had to take France off the Gold Standard in September 1936 and float the franc – analogous to Spain quitting the eurozone today.
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