Catalonia: What next? – Deutsche Bank

The recent Catalan independence referendum saw a turnout of ~40% with a 90% support for independence according to the Catalan regional government, notes Marc de-Muizon, Economist at Deutsche Bank.

Key Quotes

“Violent scenes and police clashes erupted. This was the worst possible outcome for the Spanish government who had insisted for months that no voting would take place. Catalan leader Puigdemont re-iterated his will to declare independence in the coming days.”

“More pressure on Rajoy: In a public intervention last night, Spanish PM Rajoy called all national parties to join him in finding a solution. He declared that no referendum took place and re-iterated his position that he was willing to negotiate within the legal bounds of the Spanish Constitution - which does not permit the organisation of an independence referendum in Catalonia.”

“Other national politicians reactions: Leader of opposition party PSOE Sanchez has so far supported the Spanish government, and called for negotiations to take place. The Basque Nationalist party PNV had not yet committed to support the 2018 national budget. Latest events have likely reduced the chances of them supporting Rajoy, increasing the chances of early national elections in 2018.”

“EU reactions: Brussels is unlikely to recognize the independence unless formally endorsed by Madrid in line with the Spanish Constitution. But support for Rajoy’s government may only be half-hearted. Ex-Belgian Prime Minister and MEP Verhofstadt reacted condemning the disproportionate use of violence and asking for negotiations. The EU may also try to facilitate directly or indirectly talks between Madrid and Catalonia. Absent the EU recognition of independence, the ECB would continue to operate normally with Spain benefiting from QE and all Spanish banks remaining eligible counterparties.”

“What now? If the Catalan government declares independence, Madrid will have little choice but trigger Article 155, withdraw the regional government’s authority in Catalonia and call for early regional elections. If the Catalan government does not declare independence, the regional government would most likely dissolve and early regional elections would be called. Ultimately, the solution to the Catalan situation has to come via lengthy, constructive dialogue and negotiations.”