Letter to Bloomberg

Mr James Hertling

Bloomberg BusinessWeek Editor

Dear Sir,

We have read with great interest your recent piece titled “Catalonia To Seek ECB Seat After Independence Vote: Euro Credit” While the text addresses some pressing issues of clear interests to Catalans, the euro zone, and the wider world, we cannot but fail to note the following:

1.- Mr Jacob Funk Kirkegaard, and the text's authors, fail to discuss the fate of the Spanish national debt after Catalan independence. In the absence of a debt-split agreement, Madrid's debt to GDP ratio will shoot above 125%, making it plainly impossible to repay investors. The only way for Madrid to avoid a default will be to negotiate the prompt recognition of Catalonia, in exchange for Barcelona taking over a portion of this debt. We are sure that your readers are interested to learn more about this.

2.- Concerning the European Commission, different Commissioners have spoken out in differing terms, and some have even changed their mind once or more times. The text may prompt readers to gain the mistaken impression that there is a single, confirmed position, of the EU on Catalan independence.

3.- Imagining for a second that Catalonia did indeed have to reapply, the resulting high Spanish debt to GDP ratio (discussed above) would in all likelihood trigger a Spanish default. With public opinion in Central and Northern Europe increasingly weary of repeated Spanish requests for subsidies, and the UK considering a referendum to leave the EU and increasingly fed up with Spain's harassment of Gibraltar and transfer of weapons to Argentina, the prospect of EU taxpayers stepping in to plug the gap is becoming less and less realistic.

4.- The assertion that “the Catalan government is funded by the Spanish state” may perhaps be qualified by saying that Madrid takes Catalonia's money (8.5% of her GDP) and lends her back some of the same money. Actually, it is the other way around, Catalonia is funding Spain.

5.- Concerning ECB operations, the article fails to explore the extent to which the euro zone's central bank may be ready to play hard ball. In particular in view of the impact of a Spanish default on the euro. Maybe it is Madrid who “should be very scared”. We should not forget that Spain needs the EU much more than Catalonia needs her. Madrid is a net recipient of EU funds, Barcelona is a net contributor.

6.- Linked to this, and going back to the issue of recognition, 52% of trucks from Spain proper and Valencia travel through Catalonia to reach EU markets. What would happen if Catalonia had to reapply for EU membership? May this not have some impact on Spanish exports, one of the few bright spots in her economy? Again, is Brussels or the ECB ready to play hardball and step in to save Spain? Would voters and taxpayers accept this, or push for a pragmatic arrangement?

7.- Finally, without in any way questioning their professionalism, it is a bit surprising to see two Madrid-based journalists responsible for the story. Given the strong passions the Spanish-Catalan confrontation is prompting in Madrid, and the notorious lack of unbiased reporting in the Spanish capital, perhaps it would be more reassuring for readers to see a more balanced geographical distribution of reporters covering these stories.

To sum it up, while discussing a number of interesting aspects of Catalonia's drive to recover her independence, the text fails to squarely address, and even fails to mention, a most important question for investors and governments: can Spain avoid default, dragging down the euro with her, if she does not recognize Catalan independence or if Catalonia is excluded from the EU? Of course, this is a question not being posed by Madrid-based media outlets, but it is one that a growing number of international investors are beginning to ask. We are sure they would like to hear your views in a future piece.

At Help Catalonia we are following this and other issues of interest to international investors. You may wish to have a look, for example, at “How will Spain pay herdebts? Japanese investors deserve to know” . This text was prompted by Spanish PM Rajoy's failure to discuss Japanese investors' concerns in his recent trip to that country. We would be delighted to assist you in any future reporting, and to meet any of your staff to exchange views on how to avoid a Spanish default and an end to the euro.

Thank you very much.

Yours sincerely,

Help Catalonia

Help Catalonia is a non-partisan, privately owned, Catalan public diplomacy organization