Thoughs from Galicia: 2.11.17

Spanish life is not always likeable but it is compellingly loveable.

- Christopher Howse: A Pilgrim in Spain. 

If you've arrived here because of an interest in Galicia or Pontevedra, see my web page here.

CATALUÑA

Here's a few pertinent points from this New York Times article:-

• The drama between the Spanish government in Madrid and the pro-independence government in Catalonia, which reached a new stage of tension Friday when the separatist government in Barcelona declared independence, has featured two characters familiar to students of Spanish politics: the martyr and the strongman.   
• Throughout this crisis, Mr. Puigdemont has reveled in the history of political martyrdom of the Catalan nationalist movement. For his part, Prime Minister Mariano Rajoy is acting as the keeper of the rule of law and the protector of the homeland, a role reminiscent of a long line of autocratic figures (the so-called Caudillos) in Spanish history
• At the heart of Francoism was the myth of a unified, culturally homogeneous Spain, held together by the glories of Spanish civilization — especially the “discovery” of the New World and the Christianization of the Iberian Peninsula — and a common culture defined by the Spanish language and Roman Catholicism, most notably Franco himself, who ruled with an iron fist from 1939 until his death in 1975 
• In performing to great effect the roles of martyr and strongman, Mr. Puigdemont and Mr. Rajoy are trying to score political points even as Spain careens toward political disaster. Activating Article 155, something that no other Spanish prime minister has ever done before, takes the game of chicken between Mr. Puigdemont and Mr. Rajoy to a new level of political drama, sanctimoniousness and uncertainty.
• The big loser is the people of Spain, including the majority of Catalans, who throughout this ordeal have consistently called for the one thing that neither martyrs nor strongmen are particularly good at: dialogue and compromise.

And here's a summary of recent doleful developments, from various sources:-

• A European arrest warrant may be issued for the Catalan leader after he made clear he would defy a court order to appear in Madrid today.
• Seeking Sr P's extradition, which would further inflame the political crisis. If the court issues the warrant, Belgium has up to 60 days to deliver Sr P to Madrid. Legal analysts said that if the latter fights extradition, the battle could drag on until after regional elections in Catalonia on December 21. 
• Spain is set for another day of drama in the Catalonia crisis, with a judge in Madrid to question the deposed leaders of the region’s separatist government.
• There are signs of growing divisions in the separatist camp, with many unhappy with Puigdemont and his handling of the situation. Joan Josep Nuet, a Catalan parliamentary deputy due to go before the supreme court, said on Wednesday that a no-show by Puigdemont raised the risk that those who do come will be put in preventive custody. “The attitude of the [Catalan] president and the government in recent days has been really absurd, managing only to create yet more bewilderment,” Nuet told Catalunya Radio.
• Two former Catalan ministers who had travelled to Belgium with Sr P and who have also been ordered to appear in court have flown back to Barcelona. They were greeted at Barcelona airport with jeers by unionists who waved the Spanish flag and shouted Viva España.
• Picking up on humorous portrayals in the Spanish media, someone big in Brussels has dismissed Sr P as a 'chaotic Tintin'. Which might well be fair.

If you want to know how Cataluña could go about creating its own currency, see the article at the end of this post.

Life in Spain 

• HT to Lenox of Business Over Tapas for this article – in Spanish – on the unattractive folk who organised last Sunday's largepro Spain, anti Cataluña  demonstration in Madrid last weekend.
• And a second HT to Lenox for this article on Spanish superstitions.
• And a 3rd for this article on the reasons for Spain's parlous performance as regards solar energy. It's an unimpressively 'sordid' story. An extract:-The people that own those money-losing GCC plants (Iberdrola, Gas Natural Fenosa, etc), have, let’s just say, some very strong influence with Rajoy´s government. Therefore, in Spain we have a very strong, and very successful, lobby preventing not only new solar farms but more importantly widespread residential use of solar in Spain.
• So, the 10-ride Madrid metro ticket I bought in September - and which has 8 rides left on it - will be useless to me very soon . . . 

The UK and The EU: Richard North of EuReferendum here asks the pertinent question: Why are these bastards lying to us?

The English Language: Collins has pronounced that the 'word of the year' is fake news. This has been in use for some time but, needless to say, Donald Trump claims to be the 'inventor' of it.

Finally . . . A sentiment with which I find it easy to agree . . . God save us from the New Puritans who think it’s their job to police friendly gestures on other people’s behalf. A reaction, of course, to the febrile post-Weinstein witch-hunt in the UK political and arts worlds.

Today's Cartoon:-

THE ARTICLE

Here's how Catalonia can go about creating its own currency

The Catalan independence vote has drawn parallels with the Greek crisis of 2015 - including speculation the region could form its own currency. 

During the upheaval in Greece in the summer of 2015, the spectre of a 'Grexit' was on the horizon that would have entailed it withdrawing from the eurozone.

Even before Greeks voted in a referendum against the deal laid out by its creditors, preparations were already under way to prepare for this by creating a new currency, a version of its old drachma. 

In an echo of the Grexit crisis, the Catalan Government is planning contingencies so that it can go it alone, separate from the Spanish banking system. But its preparations make it different from Greece's moment because the Catalans could be looking to set up a cryptocurrency. 

What has the Catalan Government been preparing?

The Catalonian government recently sent representatives to Estonia to learn more from digital currency pioneers there. Experts in the hi-tech Baltic state have set up an "e-residency programme", a digital identity card that allows its holders to access Estonia's public services. It is designed to attract entrepreneurs to set up a business there without stepping foot in the country. 

Dani Marco, the director of SmartCatalonia, said that Estonia "started from scratch, with all the possibilities they were offered to build a model of economic development".

Some Estonians have also floated the idea of holding an initial coin offering (ICO) to raise money for the nation by issuing crypto tokens called "estcoins", which would make it the first country to do so. But European Central Bank chief Mario Draghi dismissed the idea, saying "No member state can introduce its own currency; the currency of the eurozone is the euro".

Barcelona is a fintech centre, and hopes to leverage this to potentially create a national blockchain currency beyond the control of the Spanish state and the European Central Bank. 

This would essentially create a decentralised store of value, and mean that it might not have a central bank. It is relying on advice from Vitalik Buterin, the founder of Ethereum, a blockchain-based system to create and regulate contracts. Russia and Kazakhstan have also all proposed setting up their own national digital currencies, while some Japanese banks have proposed setting up a "J-coin" to try too.

Catalonia's ideas recall the actions of Greece’s former finance minister Yanis Varoufakis in trying to launch a parallel payment system at the height of the crisis in case Greece was ejected from the euro.

However, there are big issues with Catalonia's amorphous and technologically advanced plans: firstly, the problem of scale. It would be difficult to replace transactions overnight in such a sophisticated economy with this system. Second, it would be left with no everyday currency. 

Euros, but not in the eurozone

In 2015, the governor of the Bank of Spain warned that if Catalonia became independent, it would automatically drop out of the euro and lose access to the ECB. But Stephen Brown of Capital Economics argues that "if independence did happen, they would continue using the euro" in a parallel currency system, like Montenegro, which has adopted the euro but is not in the eurozone.

He added that Catalans would have "assets and debts in euros in banks in the rest of Spain. Unless those banks agreed to create new subsidiary in this new Catalan country, they would stay in euros". 

Claus Vistesen, of Pantheon Macroeconomics, compares the hypothetical independent Catalan economy to "emerging markets like Argentina and Zimbabwe". He adds: "There is the local currency, which is useless, and then the dollar or euro. Catalonia is not Zimbabwe; over time their own currency, if they managed it properly, would be strong."

The Catalan situation is different from the Greek one as a whole new banking system would need to be created, adds Brown. "There is no national banking network - it can’t impose capital controls or redenominate the debt to the new currency." Even if Catalonia successfully broke away, says Vistesen, civil servants and pensions would have to be paid for and debt would have to be serviced by the Government in a new currency.

Has any country set up a currency in a short time before?

When the Austro-Hungarian empire broke up in 1918, stacks of currency were transported across borders and into the countries in which people thought it would be worth more when converted. The currencies that were created after the break-up of the empire took years to stabilise.

In an ideal world, any government would want to introduce a new currency with an element of surprise to stop money rushing out of the country as people seek to avoid a devaluation of their savings. 

A new currency would have to be introduced very quickly. De La Rue, the world’s largest printer of banknotes, which has also made the new £10 notes, says: “Working out the details... is all very well when you have a year or two to think about it. Make that a month or two, and things start to get interesting.”

How do you create and print a new currency?

First, you need a design for a note. De La Rue organised the complex operation to replace Iraq’s old currency in 2003-4, delivering the notes 10 weeks after the order was placed. The company said that this process typically takes a year and a half. In South Sudan, the company designed, produced and distributed a new currency in six months - an unusually quick process.

Before the 2015 crisis, Greek banks had been preparing for an exit of the monetary union for years. In 2012, De La Rue drew up contingency plans when it looked like there was a possibility Greece might leave the eurozone. 

Setting up a brand new currency is a complex procedure: central banks provide designs or guidance, or a competition is held to produce ideas. De La Rue then works on the design.

In April 2013, designer Pavlos Vatikiotis came up with designs for a "new drachma", featuring portraits of modern Greeks from the arts and sciences, his tongue partially in cheek.

He said: "I think the currency should be beautiful because it's kind of a mirror of a country."

Steve Pond, a designer at De La Rue, said: "A banknote is a country’s national, or international, calling card. An aesthetically pleasing banknote, or one that really communicates the special features of a country, has a knock-on effect. It influences people’s perceptions of that country.”

There is also the need to decide on denominational structure and anti-counterfeit protection. De La Rue said that the largest coin should be worth 2pc of the average daily wage, and the smallest note 5pc.

For Iraq's new currency, De La Rue printed the banknotes in different location around the world: in Malta, Sri Lanka, Kenya and the UK. Special paper needs to be ordered, as well as millions of metres of security thread, watermarks, ultra-violet features and any other anti-counterfeiting devices.

Countries within the Austro-Hungarian empire did not print new notes, but stamped ink on top of old crowns to create a new currency. Czechoslovakia had its name stamped, and Romania had a cross.

How do you distribute it?

In Iraq, the distribution process was complicated by the ongoing war - one of the officials working on the Iraqi Currency Exchange team was badly injured in a bomb attack.

In the Greek situation, there were capital controls imposed, meaning large amounts of money cannot be moved around. This would have made it easier to distribute a new currency.

With any new currency, laws would have to be enacted, and businesses would potentially have to draw up new contracts.

As for Catalonia, there would be the not insubstantial prospect of creating a brand new banking system from scratch. Most observers would expect the central government in Madrid to impose order long before such a serious step towards independence was committed.