Two immediate opinions on what yesterday's resounding pro-independence vote in Spain's Catalonia region means: a tactical one, with trading implications, from SocGen, and a strategic one, from European think tank Open Europe.
WILL CATALONIA LEAVE SPAIN? As we head to press, just over half the votes are counted in Sunday's regional election in Catalonia and show 48 seats out of a total 135 will go to incumbent President Arthus Mas' CiU party, this is less than the 62 of 2010. The left-wing ERC, also a nationalist party, has 20 seats. With counting still on going, the results may still find a majority in favour of a referendum on independence, but for Catalonia to actually become independent requires agreement from all the other regions and it seems unlikely this would actually happen. Moreover, Catalonia would most likely have to reapply for EU membership (something that Spain would also have to approve). The election and the mood around it are, however, further indication of the general discontent that is becoming increasingly visible across Spain. For PM Rajoy, the risk is that he will find it increasingly difficult to secure austerity and structural reform. The regions are due to contribute half of the budget reduction in 2013.
MARKET ISSUES: The consensus is that Spain will request financial assistance in early 2013. This will see a first test of the ECB's OMT and should help bring about a significant reduction in Spain's funding costs. Whether this improves the economic outlook is another matter. The debt snowball is determined by the gap between interest rates and GDP growth. Our concern is now on the growth side.
And From Open Europe:
The Catalans Have Voted: For What Exactly?
It does not happen very often, but the final result of yesterday's Catalan elections was almost completely unpredicted by polling. Artur Mas (in the picture) and his centre-right Convergència i Unió (CiU) party were always going to win - and they did so. However, according to most opinion polls, Mas was, at worst, going to consolidate the 62 seats that his party currently holds in the Catalan parliament - but he failed to do so, and by a wide margin.
CiU only secured 50 seats - 18 short of the 68 needed to command an absolute majority. Needless to say, Spanish Prime Minister Mariano Rajoy's party has immediately described the result as a bofetada (a "slap in the face") to Artur Mas - claiming he has failed in his attempt to lead Catalonia towards independence.
So have the Catalans suddenly given up on independence? Not quite. The exploits of the left-wing independentist, anti-austerity and anti-monarchic Esquerra Republicana de Catalunya (ERC, Catalan Republican Left) won them 21 seats - eleven more than in the previous elections. Therefore, Mas could certainly try to push ahead with his plans for a referendum on Catalonia's independence with the support of ERC. 71 votes from a total of 135 seats in the Catalan parliament (without counting the smaller pro-independence parties) is not the "exceptional sovereignist majority" Mas hoped for - but is a majority nonetheless.
This is exactly what the Catalan President noted in his first remarks after the election results were made official yesterday night. He said,
Those who want to abort the [sovereignist] process should take into account that…the sum of political forces in favour of the [Catalans’] right to decide is very much a majority in the parliament.
However, CiU and ERC are hardly natural allies or the makings of a stable and durable coalition. In particular, the two parties clearly do not see eye-to-eye on the need for Catalonia to continue with fiscal consolidation. At this stage, it is difficult to predict how things will evolve within the next few weeks or months. But the following should be kept in mind:
- Under the Spanish Constitution (see here, Article 149.1), any referendum needs to be authorised by the central government. During the electoral campaign, Artur Mas has repeatedly suggested that he would get around the problem by holding such a referendum within an 'alternative' legal framework - i.e. a new Catalan law which would provide for the necessary legal base. However, this would be unlikely to stop the Spanish central government from taking the referendum to the Constitutional Court to invalidate it.
- Great uncertainty remains over how Catalonia would declare its independence in practice - not least because an amicable divorce seems to be out of the question for Rajoy and his cabinet. In any case, it would be wrong to see Catalan independence as a short-term prospect.
- Finally, and most importantly, an independent Catalonia would find itself out of the EU. Many have argued that the EU would have a strong interest in letting Spain's economic powerhouse back in as quickly as possible. A fair point, but under the current EU Treaties, Catalonia's accession would need to be endorsed by all member states - including Spain. This is arguably the biggest stumbling block for Artur Mas's hope of making Catalonia "a normal nation in Europe". Crucially, previous opinion polls have showed that the prospect of continued EU membership would be a big factor in a hypothetical referendum on independence.
Everything else, at this stage, is far from clear - especially given that the new Catalan government is not yet in place, and forming one may not be the easiest of tasks.