Thursday, October 05, 2017

Spanish Thug Life: Bankster Enforcement Of Unjust Political Bondage

nakedcapitalism  |  As reader RabidGhandi had caught, the Spanish government has already put itself in the position of using its power over the banking system to control the payments now being made by Catalonia’s government. As I read this article (and I welcome corrections and additions, since trying to understanding legal/regulatory interventions via an article translated by Google is a fraught business), Spain has used the secession threat to take control of Catalonia’s spending, taking the view that the violation of the Constitution gives it unlimited authority to intervene. From the rough English version of the El Mundo story:
The government begins to hit and where it hurts most. The Generalitat will not have free from its budget. Cristóbal Montoro has confiscated the keys of the box. From next week all the expenses destined to cover the essential public services of Catalonia will have to have the approval of Finance that will be who directly pay them. It is a question of preventing the money from being diverted to the referendum of 1-O .
This decision of exhaustive control of the Catalan accounts affects the salaries of the civil servants, the cost of the health, the education, the civil protection, the dependency and the diverse transfers in aid and subsidies to the families. In total, the approximately 1.4 billion euros per month of community funding is left to the central government, which is prepared to ensure that not a single public euro is diverted to pay for the 1-O referendum and the secessionist process…
What the Government decided this Friday is practically the application of Article 155 of the Constitution for economic purposes. It is true that the Government does not seize political competition from the Generalitat but, in fact, it binds its hands to decide on what it spends the money, since who will open the portfolio and make the appropriate payments, after strict justification by the Intervention General of the Generalitat , will be the Ministry of Finance.
And notice the mechanism for seizing control:
The central government will supervise even the approximately 250 million euros per month of own collection in Catalonia – a relatively small item, in the words of the minister – since when the Government orders financial institutions to make payments from these funds, thereof.
In this sense, Hacienda will send to the banks the text of the agreements adopted so that they are vigilant and do not allow any payment that is not justified by a certificate of the Catalan Intervention. If they detect that any of the operations may be related to the celebration of the independence consultation, they must immediately notify the Attorney General’s Office. It is a very similar method to that used to avoid criminal operations of money laundering.
In other words, Spain has mechanisms already in place by which it can require banks to step in and seize control of collections and expenditures made by parties engaging in criminal activity….and Spain’s courts have deemed the secession to be illegal. Reader Sue confirmed our reading of Spain’s ability to strangle Catalonia’s finances:
Banks cannot issue payments to Catalan public servants and Catalan institutions which depend on the Catalan Government, “Generalitat”, without previous paperwork submission and rubber stamp approval from the Spanish State bureaucracy. This has caused some anger among some Catalan public sector enterprises and contractors doing work for them when quick timely payments are of the essence. Nevertheless, right now public servants and organizations directly or indirectly linked to the Generalitat are being paid because Catalonia as of today is not a State and, (although micromanaged and surveilled and controlled by “Spain’s Ministry of Plenty”), payments reach their destination.
So what would happen if Catalonia actually secedes? Rajoy does not need to send in troops when he has banks, although he could use the belt and suspenders approach.

Spanish banks, like Santander and the cajas like Caixa/Caixabank, are licensed by the Spanish government. Spain can revoke the licenses of any Catalan banks and could also make it illegal to transfer funds in and out of Catalonia, similar to the sanctions imposed on Iran. Any bank licensed by Spain would fall into line immediately out of the threat of losing its license. It would take the cooperation of the bank regulators in other European countries for them to put similar restrictions on their banks, but given the unified EU position against separatist movements, similar rules would almost certainly be issued on an emergency basis.

As least as important, the case study of Greece 2015 shows that the ECB is perfectly happy to be the heavy as long as it has elected officials giving it political cover.
How this would play out in detail is way over my pay grade, but here are some of the things I imagine would happen:
1. No more stocking of cash in Catalonia’s ATMs
2. Cutting off merchants from electronic point of sale systems
3. Bank closures, as in at least a bank holiday and possible shuttering of banks/bank branches, with what happens to frozen Euro-denominated deposits an open question.
Notice that the measures imposed on Catalonia could be even more brutal than what was done to Greece, which merely behaved very badly in negotiations while having its banking system dependent on ECB life support. A declaration of independence is a much greater act of intransigence.