The Catalonian bell tolls for Europe

The Catalonian bell tolls for Europe
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When Shakespeare wrote that sorrows come not as single spies but as battalions, he could have had present-day European political problems in mind.

No sooner did the United Kingdom show every sign of heading toward a hard Brexit when, in April, 50 percent of the French electorate voted for candidates on the extreme left and extreme right of the political spectrum in the first round of the French presidential election.

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No sooner did German Chancellor Angela Merkel have her political authority seriously undermined by the surprisingly strong showing of the extreme right in the recent parliamentary elections when a divisive drive for Catalonian independence got into full swing in Spain.

 

The prospective distraction of a Spanish political crisis does not bode well for the deeper European integration being advocated by reform-minded French President Emmanuel Macron.

This would seem to be especially the case considering that the German Free Democratic Party, which is opposed to closer European ties, is all too likely to hold the minister of finance seat in the next German coalition government.

The heavy-handed attempt by the Spanish government to prevent a Catalonian independence referendum from taking place sets the stage for a prolonged period of Spanish political instability. By galvanizing local public support through scenes of excessive Spanish police presence, the Catalonian parliament will likely proceed to an early vote for a declaration of independence.

This is bound to plunge Spain into a debilitating constitutional crisis since the Spanish constitution expressly proscribes regions from breaking away from the union and since Spain cannot afford to give encouragement to other separatist regions, like the Basque country, to follow Catalonia’s lead.

It will not help matters that the unpopular minority government of Mariano Rajoy is almost certain to fall since it will no longer enjoy the Basque Party’s support, which also has aspirations to greater regional autonomy.

The prospect of early Spanish elections is all too likely to complicate any effort by the Spanish government to find an early, negotiated way out of the Catalonian crisis, which could mean that Spain is in for a prolonged period of political instability.

A possible way out of the Spanish-Catalonian impasse would be for the European Union to mediate a negotiated solution. However, one must expect that the European Union would be loath to become involved in what it considers to be the internal affairs of one of its member countries.

It would also be awkward for the European Union to help negotiate a greater degree of separation between Catalonia and Spain at a time that it is still making efforts to get the United Kingdom to change its mind about heading for the Brexit door.

The timing of the Catalonia crisis is also unfortunate for Europe, coming as it does just as election positioning is getting underway in Italy, ahead of that country’s scheduled parliamentary elections early next year. This could focus the markets' attention on further indications of European separatist tendencies.

All of Italy’s opposition parties have expressed to a greater or lesser degree their growing unease about the European project.

As if to underline their discontent with the euro in particular, two important Italian political parties, Bepe Grillo’s Five-Star Party and Silvio Berlusconi’s Forza Italia, are going so far as to toy with the idea of introducing a parallel currency for Italy.

An atmosphere of heightened political uncertainty in Spain and Italy could pose a risk to the European economic recovery by undermining investor confidence in Europe. This should stay the hand of Mario Draghi, the president of the European Central Bank (ECB) to engage in a premature exit from the ECB’s ultra-easy monetary policy.

Closer to home, the increasing signs of European political strains should sensitize the Trump administration to refrain from giving encouragement to separatist European tendencies, as it has done earlier this year with regard to the Brexit issue.

In a troubled world where we need dependable and effective allies, it remains in the United States economic and political interest to have a strong and united Europe.

Desmond Lachman is a resident fellow at the American Enterprise Institute. He was formerly a deputy director in the International Monetary Fund’s Policy Development and Review Department and the chief emerging market economic strategist at Salomon Smith Barney.