October 02, 2017
Catalonia recalls EU and eurozone instability
The European reaction to the scenes from Barcelona and elsewhere in Catalonia was one of sheer horror, partly because the vast majority of the badly-informed European public did not see this coming. The Spanish government clearly underestimated the degree of this shock, as public opinion in the rest of the world strongly aligned with the Catalans. One of the many questions we are asking ourselves this morning is which country might become the first to recognise an independent Catalonia. We are not talking about North Korea, but for example whether a recalcitrant post-Brexit UK might be tempted. Could this be Jeremy Corbyn first important foreign policy decision as a prime minister? Other likely bets include Russia or Turkey, as Vladimir Putin of Recep Tayyip Erdogan might be tempted to troll the EU.
The developments in Catalonia are also a reminder that the eurozone is not an area of political stability as some commentators have naïvely assumed after the defeats of Marine Le Pen and Geert Wilders. The conflict between Flanders and Wallonia in Belgium is of a different nature than that between Catalonia and Spain, but the situation there remains fundamentally unresolved. The extreme right in France, and the extreme left, have not disappeared with the election of Emmanuel Macron.
Italy is facing elections next year, which could produce either gridlock, or a coalition influenced by populist or even extremist sentiment. The next Italian government may not favour euro exit, but at least two of the largest groups, Forza Italia and Five Star, have at one time or another toyed with the idea of a parallel currency. And Matteo Renzi, the former PM and leader of the Partito Democratico, advocates disobedience of the Fiscal Compact even though it is part of Italy's own legal framework. Austria will hold its elections in just under two weeks and, while the far-right Freedom Party may not become the largest party, this is only so because the centre-right ÖVP has stolen much of its programme. Looking beyond the eurozone, there is plenty of scope for political accidents in Poland and Hungary.
People this morning woke up to a reminder that the EU, and the eurozone in particular, remain highly unstable politically.
Some readers may have wondered about our (relative) optimism about Brexit, in particular about our refusal to buy into the widely-held view that Brexit will lead to a political and economic meltdown. But just compare how the British dealt with the Scottish independence vote in 2015, and how relatively peaceful the Brexit process has been. The Tories are in deep trouble over this (see our separate story below), but the battles are now confined to parliament, where they should be.