Conservative Rajoy loses majority in Spanish elections

Spanish Prime Minister, Mariano Rajoy, has been punished at the polls with his party losing its majority.

When jobs and money start to run out, people instinctively turn to the left for the illusion of financial security that it provides and in Spain they veered to the far left.

Rajoy's Popular Party still won the most seats but only managed 123 out of the 350 on offer, down from 186 before the election. The socialist party went from 110 seats to 90 but two new far left parties - Podemos and Citizens - came out of obscurity to gain 69 and 49 seats respectively. The chances of Rajoy forming a majority coalition are pretty slim with so few prospective partners and a rainbow coalition highly unlikely due to the highly polarised nature of Spanish politics.

The significant performance of Podemos will hurt the Catalonian independence movement as they are fiercely opposed to the region's secession. If Rajoy muddles on with a minority government he can, at least, rely on support from the far left in trying to stop the Catalonian government from continuing their preparations for statehood following a referendum which saw an 80% vote in favour of independence.

Ah, mierda

Catalonia begins independence process from Spain

The Catalan government yesterday voted to declare independence from Spain by 2017.

A referendum was held last year on Catalonian independence which only managed to muster a 37% turnout but saw more than 80% vote in favour of independence. The Spanish government tried to block the referendum with the constitutional court in Madrid ruling that all Spaniards had a right to vote on matters of sovereignty.

The Spanish government will lodge an appeal against the Catalan parliament's decision to establish a treasury and social security system in preparation for independence to have it declared unconstitutional.

The constitutional court will of course declare the Catalan parliament's motion unconstitutional but the ruling of a court in what would be a foreign country after Catalonia becomes independent is unlikely to concern the Catalan nationalists.

The Spanish government intervened in the Scottish independence referendum campaign to tell the Scots that Spain would veto their EU membership application because Rajoy was concerned that it would embolden the Basques and Catalans. It doesn't look like they need much emboldening.

Catalonia demands independence and bailout

A pro-independence rally in Barcelona today attracted 1.5m people demanding more money from the Spanish government and independence for Catalonia.

Spain's regions all have a degree of autonomy with the most antagonistic regions - Catalonia and Baque -getting more independence from Madrid than the rest.  They have the power to set their own taxes and to borrow money, all underwritten by the Spanish central bank which has very little control over the debts the regions rack up.  While the going is good and the regions can pay the debts they build up the arrangement works perfectly because it directly links spending to income but when the going gets tough the lack of responsibility for those debts leads to the problem Spain is seeing now where the regional governments can't afford to pay and the federal government has to foot the bill.

The Catalans are demanding more money from the federal government because they pay a lot more into the Spanish treasury than they get back.  They're demanding a €5bn bailout and a change to Spain's tax rules to close the gap between tax bills and budgets.

Devolved governments spending money they don't have, lack of fiscal responsibility, one "region" paying more tax than they get from the central government.  This is all sounding very familiar.  What we are seeing in Spain isn't just a warning about the folly of the EU single currency, it's a warning about what happens when you allow devolved governments to borrow money without proper supervision by the central bank guaranteeing the loans.

It's important that devolved governments have the direct link between tax and spend but taking on sovereign debt should be the preserve of the central bank and if devolved, the central bank needs to keep a tight reign on what debts are being taken on.