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That Other November Election

NEW YORK ( TheStreet) -- This November, a very important election will take place. The result, many say, could determine the fate of one of the world's biggest regional economies.

You might think we're talking about the U.S. presidential election, but we're actually eyeing a different contest: Catalonia's regional elections, scheduled for Nov. 25, which are already being touted as the latest "critical day for the eurozone."

Catalonia, home to Barcelona, boasts Spain's largest regional economy. It also boasts Spain's highest regional debt load, which its leaders have long argued wouldn't be as heavy if the region weren't forced to surrender a large share of its tax revenues under Spain's regional redistribution system.

When Spain returned to democracy after Francisco Franco's death in 1975, its constitution established 17 autonomous regions. Each controls its own education, social welfare, health care and transportation systems, spends as it sees fit and issues regional debt.

Each also sets its own tax rates -- but save for the Basque Country and Navarre, none collects its own tax revenue. Instead, they send all revenue to Madrid, where the central government allocates some to the federal budget and redistributes the rest among the regions.

According to the constitution, each region receives funds "in proportion to the amount of State services and activities for which they have assumed responsibility."

But Spain also allocates funds to the Inter-Regional Compensation Fund, which aims to correct regional imbalances. As a result, the amount richer regions like Catalonia receive isn't proportional to their budget or revenue contributions.

This is a heated issue in Catalonia, which has a centuries-long tradition of independence -- at times it's been a sovereign nation, and it retains its own language and culture to this day. It also retains a strong separatist movement -- Catalan nationalists have frequently controlled the regional government, and more than 50% of voters favor seceding from Spain.

Its debt troubles have only strengthened the movement: Catalan leaders argue that if they could collect and keep more of their own revenue, as the Basque Country and Navarre do, they wouldn't need 5 billion euros from Spain's regional bailout fund to cover the rest of the region's maturing debt this year.

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