Spain: Catalonia's New Government to Extend Grip on Economy

Voters in Catalonia are today electing a government that will be able to implement new laws giving the region increased autonomy within Spain and a tighter grip over its 150 billion-euro ($191 billion) economy.

Convergence and Union, an alliance of Catalan nationalist parties known as CiU and led by Artur Mas, is set to win as many as 52 seats in the 135 seat-parliament compared with 39 seats for the second-placed Catalan Socialists, according to the latest polls. Both parties back quick implementation of a new statute on Catalan autonomy that was adopted in a referendum in June and fueled tension with the rest of Spain.

The statute allows the regional government to retain more tax revenue, expand the use of the Catalan language in business and have regulatory control over areas from competition to consumer protection and banking. That expanded reach could lead to new rules that hamper the 44 billion euros a year of trade with the rest of Spain, politicians and academics say.

"We've set off on a dangerous path," Leopoldo Calvo- Sotelo Jr., a lawyer who was a senior civil servant in the Interior Ministry in the former People's Party government that opposed the statute, said in an Oct. 18 interview. "There is a risk of fragmenting the market. Mas will put all his political capital into implementing the statute."

Voting began at 9 a.m. and 25 percent of those eligible to take part cast their ballots by 1:09 p.m. Polls close at 8:00 p.m. and the result is due to be known by around 9:30 p.m.

Separate Language

The expansion of autonomy in Catalonia is an issue that inflames passions in the region and the rest of Spain. Spanish companies have to be able to work in Catalan -- a separate language, not a dialect -- and adjust to different tax rules. The dispute over the new statute saw long-standing regional rivalries spill over into hostility. Leaders of the People's Party, which backs more control by the central government in Madrid, have been physically attacked.

At an Oct. 10 campaign event in Martorell, site of Volkswagen AG's Seat auto plant, PP candidate Josep Pique was assaulted by a group of protesters and his bodyguard was taken to hospital with minor injuries, a party spokeswoman said.

The PP will claim just 10 percent of the vote today, according to a poll conducted Oct. 2 to Oct. 15 by the Center for Social Research which gave CiU 34 percent and the Socialists 28 percent. The center interviewed 1,986 people and the margin for error was plus or minus 2.2 percentage points.

Threat to Growth

In the short term, the regional economy will receive a boost from an increased share of public investment in infrastructure promised by the statute. Beyond that, the risk is that diverging economic regulations being produced by the increasing autonomy will damage growth prospects.

"Institutional changes of this nature can have significant and long-lasting economic consequences, weakening the economy's efficiency and capacity for growth," Jaime Caruana, the then governor of the Bank of Spain, said in testimony to parliament in October of last year.

Barcelona employees of Milwaukee-based Brady Corp., a maker of identification cards and signs, are lobbying to move their office to Madrid. "Our people in Spain say that for business we really should be in Madrid," Brady spokeswoman Michelle Olson said in an Oct. 25 interview.

The campaign for the statute may have contributed to accelerating Madrid's rise, analysts say. The previous Catalan government spent three years negotiating the statute as Madrid Mayor Alberto Ruiz Gallardon pushed on with a plan to improve the city's infrastructure and boost economic growth, building a new airport, roads and tunnels.

"While the world turns at great speed, we continue to stare at our historical navels, wasting time on a new statute that nobody believes in," Francesc de Carreras, professor of constitutional law at Barcelona's Autonomous University wrote in an editorial in the newspaper El Mundo.

Source: bloomberg.com