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Playing With Fire in Catalonia

Summary:
A relentless state, angry demonstrations, and profoundly worried businesses. By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET. The ever-worsening political standoff between Spain and Catalonia is beginning to take a toll on credit markets, as banks refuse to renegotiate the terms of loans granted to companies with operations in the separatist region. One of the first victims is the British fund John Laing Infrastructure which, in its 2017 annual report, divulged some of the problems it faced trying to refinance a €700 million loan for work on section two of Barcelona Metro’s Line Nine. The fund owns 53.5% of the concessionaire operating the fifteen stations on the line’s southern section. The other partners include Iridium, a subsidiary of the Spanish infrastructure giant

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A relentless state, angry demonstrations, and profoundly worried businesses.

By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.

The ever-worsening political standoff between Spain and Catalonia is beginning to take a toll on credit markets, as banks refuse to renegotiate the terms of loans granted to companies with operations in the separatist region. One of the first victims is the British fund John Laing Infrastructure which, in its 2017 annual report, divulged some of the problems it faced trying to refinance a €700 million loan for work on section two of Barcelona Metro’s Line Nine.

The fund owns 53.5% of the concessionaire operating the fifteen stations on the line’s southern section. The other partners include Iridium, a subsidiary of the Spanish infrastructure giant ACS, and Queenspoint, a fund part owned by German insurance giant Allianz and the Danish pension fund ATP.

One of the main reasons why the banks involved don’t want to soften the credit conditions of the loan is that Barcelona’s metro depends on Catalonia’s regional government for funds. Building on Line 9 began in 2005 but was temporarily halted at the height of Spain’s financial crisis due to a funding shortage. Thirteen years later, the project is still far from complete and further progress is unlikely to be helped by the political chaos engulfing the region.

In the last fortnight alone Pablo Llarena, the Supreme Court’s judge in charge of the main investigation against Catalan secessionists, has indicted 25 Catalan leaders, put five who had previously been released on bail back in pretrial detention (for up to four years), and issued European Arrest Warrants against six pro-independence figures who have fled Spain. They include former regional President Carles Puigdemont who is presently occupying a jail cell in northern Germany awaiting a decision on his extradition.

News of his arrest sparked angry demonstrations that culminated in violent clashes with the police. Ominously, this could be just the beginning of a much broader crackdown by Spanish authorities on pro-independence supporters in Catalonia. In its latest budget proposal for 2018, which is unlikely to be passed by the nation’s parliament, Madrid’s fragile coalition government has earmarked 132% more funds for Civil Guard and National Police units in the breakaway region.

On Monday evening the Public Prosecutor’s Office at the National High Court in Madrid announced that it has launched an investigation into the activities of Catalan separatist protest groups known as Committees for the Defence of the Republic (CDR). Like Catalonia’s jailed politicians, the activists could face charges of rebellion, which carries up to a 30-year prison sentence.

Last Tuesday CDR groups blocked the most important highway linking Spain with France by erecting barriers at tolls causing disruption for Easter travellers. Over the Easter weekend the groups, which are estimated to number some 200, opened toll barriers and disabled security cameras on some Catalan motorways, so that drivers did not have to pay.

“The Catalan Spring has erupted,” the group said in a statement on Sunday. “We have crossed the point of no return… we will reappropriate the streets and stop the country,” the statement added in a call for a general strike like the ones held late last year when the region’s separatist crisis boiled over.

It’s a threat that many in the business community take seriously. Since the banned referendum on Oct.1, over 3,000 companies, both domestic and foreign, have shifted their headquarters to other parts of Spain, albeit in most cases only on paper. Tourist numbers also remain fairly subdued in Barcelona, according to the latest figures. Real estate investors, by contrast, remain relatively undeterred. After a small dip in the fourth quarter of 2017, residential property prices in Catalonia resumed their upward trajectory, surging by 14.9% per square meter in the first quarter year-over-year, and in Barcelona, by nearly 20%, according to the property website Idealista.

Other investors are less sanguine. Last week organizers of the fourth edition of the Barcelona World Race announced they were pulling out. The event was scheduled to take place in January 2019 and was forecast to generate up to €40 million for the city. Among the reasons cited for its abrupt cancellation were the difficulties the organizers had encountered trying to find sponsorship due to “the lack of political stability” affecting the region.

Similar complaints were aired at a heated meeting between German industrialists and the pro-independence speaker of Catalonia’s parliament Roger Torrent in early March. One participant accused the separatist leaders of trying to take Catalonia back to the middle ages and said they should all go to jail to general applause.

“We want a strong Catalonia, we invested here and we want security,” Albert Peters, chairman of the Barcelona-based Circle of German-Speaking Businessmen in Catalonia, told Onda Cero radio in an interview following the meeting. “Everyone must comply with the constitution, and if not, then that person should be taken to court.” Peters’ association represents more than 200 executives and its sponsors include firms such as BASF SE and chocolate maker Lindt & Spruengli AG, according to its website.

Large German investors in Catalonia include Volkswagen AG, whose SEAT unit in Martorell near Barcelona employs around 12,000 people. The company has already warned that in the event of another referendum on secession from Spain, it would not only change its headquarters, but would close the bulk of its facilities in Catalonia, including the Martorell plant.

Now, judges in Germany must decide whether or not to extradite Puigdemont. The most serious charge he faces, rebellion, is only reserved for “violent and public uprisings” — something neither Puigdemont nor any other of the defendants can justifiably be accused of without bending the meaning of the law beyond all recognition, though that hasn’t stopped the presiding judge Llarena from trying.

If Puigdemont is ultimately extradited on the full roster of charges for reasons of political expediency, the escalating crisis in Spain’s richest region is likely to get a whole lot worse, not better, with potentially grim consequences not only for Catalonia’s economy but also for many of the businesses with operations here. By Don Quijones.

“This plan, far from solving or alleviating the problem, is likely to make it a whole lot worse.” Read…  Banks & Builders Want New Property Bubble In Spain, Government Obliges

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