Catalonia Nears Default, Threatens Spain’s Debt

The Central Government blinks. By Don Quijones, Spain & Mexico, editor at WOLF STREET. When Catalonia’s regional government announced a road map to independence from Spain in November last year, Madrid’s response was to threaten to cut off the financial supply lines to the region. It was the equivalent of a declaration of economic war, riddled with risks, especially with an acutely cash-strapped Catalonia facing over 4.6 billion of bond redemptions in 2016.
Madrid’s strategy was economic madness, as we warned at the time: Catalonia’s economy accounts for 20% of Spain’s GDP. And international investors would freak out if roughly one-fifth of Spain’s economy suddenly plunged into a deep recession or became ungovernable. Investors might question the ability of the Spanish government to service its over 1 trillion in debt.
Now, that scenario might be in the process of coming true.

This post was published at Wolf Street by Don Quijones ‘ March 19, 2016.