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Don Quijones

Articles by Don Quijones

Days of Living Dangerously in Catalonia

3 days ago

Fractured communities, splintered families, broken friendships.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
In Catalonia the economy is already beginning to feel the pinch from the rise in political tensions, as tourist numbers plunge 20% to 30% and as hundreds of companies, both domestic and foreign, move their headquarters to other parts of Spain, albeit in most cases only on paper.
But there’s one business that’s doing a brisk trade: the flag business.
Wherever you go these days, flags are everywhere. For years the estelada flag, the starry symbol of Catalan independence, has been a ubiquitous feature of the urban landscape. But now the Spanish flag is doing its best to catch up. As Catalonia’s separatist movement grows in confidence, more and more balconies in

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ECB Suffers from “Corporate Capture at its Most Extreme”

4 days ago

Many of these banks are implicated in the biggest financial crimes.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
No single institution has more influence over the lives of European citizens than the European Central Bank. It sets the interest rates for the 19 Member States of the Eurozone, with a combined population of 341 million people. Every month it issues billions of euros of virtually interest-free loans to hard-up financial institutions while splashing €60 billion each month on sovereign and corporate bonds as part of its QE program, thanks to which it now boasts the biggest balance sheet of any central bank on Planet Earth.
Through its regulatory arm, the Single Supervisory Mechanism, it decides which struggling banks in the Eurozone get to live or die and

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Catalonia Crisis Far From Over Despite Market Surge

7 days ago

Hopes that Catalonia’s woes could be contained are fading.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
On Tuesday night, for the briefest of moments, Catalonia’s government severed its ties with Spain. The region’s president, Carles Puigdemont, declared independence from Spain at around 7.40 p.m., Spanish time. Then, roughly ten seconds later, he put it all on hold, to the visible dismay of many of his fellow travelers.
The markets were pleased, interpreting the suspended declaration of independence as a retreat from the brink. The Spanish stock index IBEX 35 surged 1.5% on Wednesday, and is up 3.4% in five trading days, making up a big part of what it had lost over the prior four trading days. It remains 7% below its year-to-date high at the end of April.
For many

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Spain Teaches Catalonia a Lesson about the Power of Money

12 days ago

Money is fickle and fearful.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
Within 48 hours this week, Catalonia, Spain’s largest regional economy, lost three of its seven biggest homegrown multinational corporations and several large national companies — at least on paper — to cities in other regions of Spains.
The first important company to leave since Sunday’s referendum was mid-sized pharmaceutical company Oryzon Genomics SA, which announced on Wednesday that it was departing Catalonia for Madrid. The same path has been traveled recently by firms like Derby Hotels, Unico Hotels, WPP and Schibsted.
But it wasn’t until Banc Sabadell, Spain’s fifth largest bank, announced that it was changing its registered company address to Alicante, a provincial city on Spain’s

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Catalonia Chaos Begins to Squeeze Spain’s Financial Markets

14 days ago

Bank shares plunge. Money is already on the move.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
Spain’s biggest political crisis of a generation, which has led to the complete breakdown of communication and understanding between its government in Madrid and the separatist region of Catalonia, is finally beginning to take its toll on the country’s financial markets.
Spain’s benchmark index, the Ibex 35, slumped nearly 3% following its worst day of trading since the Brexit vote last June. Spain’s 10-year risk premium — the differential between the yield on its 10-year bonds and the yield on Germany’s 10-year bonds — soared to 129 basis points. And that’s despite the fact that the ECB continues to buy Spanish debt hand over fist.
But it is the banks that have borne the

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How Did Things Get So Bad in Catalonia?

15 days ago

Will Spain trigger Article 155 of the Constitution?
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
Unless concrete measures are taken to calm tensions between Madrid and Catalonia, one of Spain’s richest, safest and most visited regions could soon be plunged into chaos. With neither side willing for now to take even a small step back from the brink, the hopes of any kind of negotiated settlement being reached are virtually nil, especially with the European Commission refusing to mediate.
Since Sunday the Spanish government has even ruled out dealing with Catalonia’s president, Carles Puigdemont, and its vice president, Oriol Junqueras. In other words, the communication breakdown between Madrid and Barcelona is now complete.
But how did things get so bad in Catalonia?

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Catalonia’s Dark Days Ahead

18 days ago

It isn’t just about what happens on Sunday; it’s about the ensuing days and weeks.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
The next 72 hours could be crucial not only for Catalonia, but also for the rest of Spain and Europe. For now, the cards are overwhelmingly stacked in Madrid’s favor. The central government enjoys the outward support of all European institutions, key Western partners and has the full power of the law on its side as well as the full arsenal of state repression at its disposal.
After confiscating millions of ballot slips and thousands of ballot boxes, and launching what Wikileaks’ Julian Assange has termed the “world’s first Internet War” against Catalonia, freezing telecommunications links, occupying telecoms buildings and censoring hundreds

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ECB Wants to Weed Out Smaller Banks to Cut Competition

19 days ago

Europe needs “brave banks” willing to conquer new territory.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
The biggest financial problem in Europe these days is that it is “over-banked,” according to Daniele Nouy, Chair of the ECB’s Supervisory Board, and thus in charge of the Single Supervisory Mechanism, which regulates the largest 130 European banks.
In a speech bizarrely titled “Too Much of a Good Thing: The Need for Consolidation in the European Banking Sector,” Nouy blamed fierce competition for squeezing profits for many of Europe’s banks while steadfastly ignoring the much larger role in the profit squeeze played by the ECB’s negative-interest-rate policy. ECB President Mario Draghi agrees.
The profits of the largest 10 European banks rose by only 5% in the

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Wall Street and City of London Press Panic Button on Catalonia

21 days ago

“Sometimes you have to keep the black swans in mind.”
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
In recent days, JP Morgan Chase, Goldman Sachs and ING, have warned about the political situation in Spain’s richest region, Catalonia, where a banned referendum on national independence is scheduled to be held on Oct. 1.
JPMorgan advised its clients to reduce their exposure to Spanish government debt. Although the bank does not foresee Catalonia achieving independence, it believes that developments in the region could lead to a resurgence in Spain’s risk premium.
In the last five weeks the premium (the cost differential of Spain’s 10-year bonds vis-á-vis Germany’s) has increased from 101 to 121 basis points. It’s still not much compared to the 630 points that it

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The Steep Price of Disaster in Mexico

24 days ago

Rebuilding with no insurance and little government aid.
Wolf here: Don Quijones and his wife, who is from Mexico, spent part of the summer in Mexico but returned to Spain a few days before the earthquake. DQ’s in-laws live in Puebla, Mexico City, and Morelos — among the hardest hit places. They got through it unharmed and are more or less OK for now. But a lot of uncertainties remain. My thoughts are with them.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
Rescue efforts in Mexico are beginning to wind down after a trepidatory (vertical) earthquake unleashed destruction and bedlam in Mexico City and the two central states of Puebla and Morelos on Tuesday. The temblor took place 32 years to the day after a horrendous quake killed at least 10,000 people in Mexico City

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It Gets Ugly in Catalonia

27 days ago

Spain’s “ships of repression” are coming to help out. 
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
Madrid’s crackdown on Catalonia is already having one major consequence, presumably unintended: many Catalans who were until recently staunchly opposed to the idea of national independence are now reconsidering their options.
A case in point: At last night’s demonstration, spread across multiple locations in Barcelona, were two friends of mine, one who is fanatically apolitical and the other who is a strong Catalan nationalist but who believes that independence would be a political and financial disaster for the region. It was their first ever political demonstration. If there is a vote on Oct-1, they will probably vote to secede.
The middle ground they and hundreds of

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Catalonia’s Defiance of Spanish Authority Turns into Rebellion

September 16, 2017

“Do not underestimate the power of Spanish democracy.”
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
With these words, eerily reminiscent of a line once spoken by Star Wars villain Darth Vader, Spain’s Prime Minister Mariano Rajoy brought to a close a week of frenzied drama. It began with a foiled attempt by the Spanish police to close down the official website for the Catalan independence referendum. As often happens with web-based raids, the official site was up and running again within minutes, albeit with a different domain name.
Next, the Public Prosecutor’s office ruled that the referendum is now illegal “beyond all doubt” and instructed the Civil Guard, National Police, Catalan Police (Mossos d’Esquadra) and local police forces to act to stop it. It also

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Investors Fret as Catalonia’s Independence Turmoil Seethes

September 12, 2017

The closer the referendum, the more draconian Spain’s response. 
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
After years of simmering tensions, the biggest showdown yet between Barcelona and Madrid appears to be just weeks away. On Oct 1, the regional government of Catalonia plans to hold a referendum on national independence, in complete defiance of Spain’s central government in Madrid. As a last show of strength, an estimated one million separatists filled the streets of Barcelona, a city of just one and a half million people, for Catalonia’s national holiday, La Diada, on Monday.
Companies and investors are somewhat less enthused by the prospect of a head-on clash between Madrid and Catalonia, Spain’s richest and fastest-growing regional economy. An increasing

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So Where Does the Money Go that Mexico Borrows?

September 11, 2017

Answers emerge. Including offshore private accounts.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
Mexico’s public debt-to-GDP of 50% may seem modest by today’s inflated standards, but when it comes to debt, everything is relative, especially if you don’t enjoy the benefits that come from having a reserve-currency-denominated printing press, and if you borrow in a foreign currency that you don’t control.
As the debt load grows, more and more of the States’ financial resources must be used to service it. As El Financiero reports, the cost of servicing Mexico’s debt, despite super-low interest rates globally, has almost doubled in the last five years, and is now higher than it has been at any time since 1990. In fact, according to the Government’s own figures, more

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The Next Spanish Bank Teeters, at Worst Possible Time

September 10, 2017

It just doesn’t let up with these banks.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
The timing could not have been worse: just as Spain faces its biggest constitutional crisis in over 40 years with Catalonia’s independence vote, another bank has begun to wobble.
Liberbank, Spain’s eighth largest lender, was spawned in 2011 from the shotgun marriage of three failed cajas (savings banks), Cajastur, Caja de Extremadura and Caja Cantabria. The new bank’s shares were sold to the public in May 2013 at an IPO price of €0.40. By April 2014, they were trading above €2, a massive 400% gain.
But by April 2015, the stock had started sinking. By May 2017, it was trading at around €1.20. Then came the collapse of Banco Popular in early June, which took many investors (but not

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ECB Tightens Noose Around Bank Accounts

September 5, 2017

Locking up the money of unsuspecting depositors to prop up collapsing banks.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
The European Central Bank (ECB), arguably the European Union’s most powerful and least accountable institution, apparently needs more power, according to Daniele Nouy, the ECB’s top supervisor. Chief among the fresh powers it seeks is the power to temporarily prevent people from withdrawing their money from their accounts at banks that are in distress, including by electronic fund transfers.
“In my view… the introduction of adequate moratorium power for authorities is needed in order to react with the needed flexibility, if the situation of a bank deteriorates rapidly,” Nouy told a member of the European Parliament in a letter. “Given the

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Global Banks Sabotage Uruguay’s Efforts to Legalize Marijuana

September 3, 2017

It’s hard to do business without banks.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
The first country to fully legalize the recreational use of marijuana, Uruguay, has suddenly found itself facing an unexpected obstacle: the international banking industry.
It all began a few weeks ago when one of the 15 pharmacies that had agreed to sell the two varieties of cannabis distributed by the Uruguayan State announced that it was withdrawing from the scheme after its bank, Santander, had threatened to close its account unless it stopped providing services for the state-controlled sales. Shortly afterwards it was revealed that other banks, including Brazil’s Itaú, had canceled the accounts of the private companies that had been granted a license to produce marijuana as well

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How Did Things Get This Bad This Fast for Oil Giant, Pemex?

August 27, 2017

A slew of reasons. But one stands out, and it’s not the price of oil.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
One of the biggest surprises awaiting seasoned travelers to Mexico these days is the daily sight of privately branded gasoline stations. For the past eight decades Mexican drivers had only one choice of filling station: state-owned oil behemoth Petróleos de Mexico (A.K.A. Pemex). Now they have six.
Of the first five private companies to open operations in the sector, three were Mexican (Hidrosina, La Gas, and Oxxo Gas) and two were US-based (Gulf and Petro-7). From 2018, foreign operators will even be allowed to sell imported gasoline from the gas stations they operate. It will be the first time since Mexico’s oil industry was nationalized, in 1938, that

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Next Brick to Drop on UK Economy: Housing Bubble Deflates

August 25, 2017

London home prices are already tanking, as demand sags.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
The symbiotic sectors of construction and real estate have been a vital engine of economic growth in the United Kingdom for decades, but that could be about to come to an end. In the words of Paul Smith, the chief executive of the UK’s largest independent lettings and real estate agency, Haart, “unaffordability in the UK’s property market is now reaching crisis point.” If drastic measures are not taken to tame prices, the UK could lose its place as a property owning democracy, he warns.
The latest figures published by the Office for National Statistics (ONS) reveal that the average cost of a home jumped by £10,000 in June from a year earlier, to £223,000. In the last

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Paradise for Oligarchs: Poverty, Inequality Soar as Wealth Rises

August 18, 2017

Welcome to the Mexican Paradox.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
Mexico is nothing if not a land of bewildering contrasts. Economically speaking, the country is a regional powerhouse. On the one hand, it boasts one of the richest “official” billionaires on the planet; on the other, some of the worst income inequality rates in the Western hemisphere. It places 20th on the list of countries with the most millionaires but it’s also home to the 15th largest population of poor people on the planet.
A new study released this week reveals that the wealthiest Mexicans, equivalent to 1% of the population, own roughly the same amount of wealth as 95% of the people further down the wealth scale.
The study, titled “The Distribution and Inequality of Financial and

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Support for Hard Brexit in the UK Hardens

August 16, 2017

“Significant economic damage” is a “price worth paying.” But businesses are not so sure.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
Europhiles hoping that time might heal or at least narrow the rift separating the UK and the EU after last year’s Brexit vote are likely to be sorely disappointed by the findings of a new poll jointly conducted by Oxford University and London School of Economics.
The survey reveals that there is more support for harder Brexit options because Leavers and a substantial number of Remainers back them. The survey’s findings bolster the case for the hard-Brexit-or-nothing position favored (at least publicly) by British Prime Minister Theresa May. The alternative — a so-called “soft” Brexit — would imply having to accept full freedom of

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Spain’s New Big Bubble Begins to Wobble

August 13, 2017

Tourism is now bigger than construction was during the real estate bubble.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
Since hitting rock bottom in 2013, Spain has been one of the biggest engines of economic growth in Europe, expanding at around 3% per year. But according to a report by the Bank of Spain, most of the factors behind this growth — such as cheaper global oil prices, the ECB’s expansionary monetary policy, and the subsequent decline in value of the Euro — are externally driven and transitory in nature.
This is particularly true for arguably the biggest driver of Spain’s economic recovery, its unprecedented tourism boom, which some local economists are finally beginning to call a bubble.
In large part the boom/bubble is a result of the recent surge in

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Two of Mexico’s Biggest Bugbears Surge Again

August 11, 2017

Footloose hot money that has flooded Mexico can quickly dry up.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
After several consecutive months of predominantly positive developments, including the governing Institutional Revolutionary Party’s recent electoral victory in its key state, Estado de Mexico, the outlook for Mexico’s economy is no longer negative; it’s stable. That’s according to rating agencies, Fitch and Standard’s & Poor.
It’s a remarkable turnaround for a country that began the year in the most ominous fashion, with a crumbling currency, surging inflation and a popular revolt against gasoline price hikes.
But the peso, after plumbing to new depths of 22 pesos to the dollar on January 19, has clawed its way back to 17.8 pesos to the dollar– a 22% surge in

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The Only Thing Keeping Italy’s Debt Alive is the ECB

August 9, 2017

Even Italian banks are dumping Italian government bonds.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
New statistical data from the investment bank Jefferies LLC has revealed a startling new trend that could have major implications for Europe’s economic future: Italian banks have begun dumping unprecedented volumes of Italian sovereign debt.
Holdings of government debt by Italian financial institutions slumped by a record €20 billion in June — almost 10% of the total — after €9.4 billion of sales in May. As the FT reports, the selling by Italian banks is the most emphatic example yet of a broader trend: banks sold €46 billion of government paper in June across Europe, taking the total reduction since the start of this year to €257 billion.
The banks’ mass sell-off is

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Blowback Begins for Companies in UK Ground Rents Scandal

August 6, 2017

“Why did no one senior at the company say, ‘This will come back to haunt us’?”
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
Fallout from he UK’s ground rents scandal, which we reported on a week ago, is beginning to take a financial toll on some of the companies most implicated in it. That includes the country’s third largest home builder, Taylor Wimpey, which took a 24% hit to first-half profits after setting aside £130 million ($170 million) to help home buyers affected by the leasehold scandal. The government is investigating. Depending on how new legislation and pending lawsuits pan out, the company could end up owing a whole lot more.
Leaseholds have been around in the UK for centuries and are commonly used for apartment buildings, where there’s some semblance

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Chaos Hits Barcelona’s Tourist Industry

August 5, 2017

It’s not just the weather that’s heating up in Spain’s second city.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
It’s finally happened. After years of surging public opposition to unrestrained growth of the city’s tourist industry, Barcelona has witnessed a rash of coordinated attacks against tourist targets in the last week. It all began last Friday when a gang of four masked men slashed the tires of an open-top bus filled with holidaymakers and sprayed the windscreen with the slogan “Tourism kills neighborhoods.”
Responsibility for the ambush was claimed by Arran, the youth wing of the radical separatist CUP (Popular Unity Candidacy) party, which was also behind a video posted this week of members vandalizing tourist bicycles. In recent months at least seven hotels

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The Dark Underbelly of Spain’s Jobs Recovery

August 1, 2017

Where Did All the Workers Go?
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
Two years ago, the total number of unemployed in Spain, officially speaking, was 5.5 million — the equivalent of 23.2% of the country’s active population. It was the second-highest unemployment rate in the EU, far worse than third-place Hungary (18.5%) but not quite as terrible as Greece (26%).
At that time, Spain was also proud home to the five European regions with the worst levels of unemployment. At the top of the heap was the southern province of Andalusia whose unemployment rate was close to 35%! Even fifth place, Castilla-la Mancha, had an unemployment rate of 29%.
Now, after two years of consecutive quarters of robust GDP growth and an unprecedented tourist boom, things appear to have

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Leaked: EU Plans to Freeze Deposits to Prevent Bank Runs

July 30, 2017

Desperate Times, Desperate Measures.
By Don Quijones, Spain & Mexico, editor at WOLF STREET.
Following a spate of drastic banking interventions in Spain and Italy earlier this summer, the European Commission is preparing new legislation to prevent bank runs from completely wiping out Europe’s hordes of zombified lenders. According to an Estonian document seen by Reuters, that legislation would include measures allowing EU governments to temporarily stop people withdrawing money from their accounts, including by electronic fund transfers.
The proposal, which has been in the works since the beginning of this year, comes less than two months after a run on deposits pushed Banco Popular over the brink in Spain. In its final days, Popular was bleeding deposits at a rate of €2 billion a

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UK’s “Ground Rent Scandal” is Wrecking Homeowners

July 28, 2017

The Global Rentier Economy is now on steroids.  
By Don Quijones, Spain, UK, Mexico, editor at WOLF STREET.
Imagine buying a house with a 30-year mortgage only to discover months later that you have to pay rent on the ground upon which it is built. That rent can go up just about as high and as fast as the real owner wants it to. Plus, if you want to make any structural changes to the building you’ve bought but don’t own, you must first seek permission from the owner; if he or she concurs, you then must pay a hefty fee.
Absurd as this arrangement may sound, it is surprisingly common in the United Kingdom today. Banished from most advanced economies, including those with English common law like Australia, North America, or even Scotland, this archaic leasehold arrangement has in

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Catalonia’s Independence Strife Turns into Financial Showdown

July 23, 2017

Will Spain’s central government blink (again)?
By Don Quijones, Spain & Mexico, editor at WOLF STREET.
Madrid’s standoff with Spain’s north eastern province of Catalonia, which plans to hold a forbidden referendum on national independence on October 1, grows more and more complex by the day. Just in the last week alone the following developments have taken place:
Spain’s Civil Guard has raided Catalonia’s parliament and government HQ as part of its investigation into political corruption in the region. As new research has shown, this investigation forms part of a broader police operation that has served as a means for Spain’s governing People’s Party to spy on political rivals.
Catalonia’s government has replaced the region’s chief of police with a die-hard separatist. It has also

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