Spain: Referendum on Catalonian independence on 1 October - ING

The Spanish regional government announced 1 October as the date of the (still illegal) referendum to ask whether Catalonians are in favour of a Catalonian Republic notes Geoffrey Minne, Economist at ING.

Key Quotes

“This announcement confirmed the decision from the Catalonian Government to unilaterally initiate a referendum on secession from Spain and in particular on the creation of “an independent State in the form of a Republic”. This project is not new as it was already announced in regional elections of September 2015. The proposal by Rajoy to explain to the national Congress the project of a constitutional referendum was rejected by the Catalonian government. The Catalonian independence problem has been like a can kicked down the road again and again and it does not come as a surprise that Spanish and Catalonian positions seem irreconcilable at the moment.”

“In 2014 a Catalan self-determination referendum was hold but a boycott by the traditional parties led to a low participation rate. Until then, the different attempts to organise a referendum were blocked by both the national government and the Constitutional court. Despite the anti-constitutional nature of this political decision (which was confirmed by the Venice Commission of the Council of Europe), the Catalonian government continues to deny the authority of the Spanish institutions and is expected to go ahead with the organisation of the referendum on 1 October.”

“What could happen next? As it was the case in 2014, the vote could be boycotted by a large part of the voters, which would weaken the key message of the pro-independence movement. In any case, knowing that support for the pro-independence movement has decreased recently (notably thanks to the economic recovery), it remains difficult to imagine massive support from the population. In the last poll, 44% were pro-independence and 48.5% prefer the current situation. From an economic point of view, independence could hurt both economies and for Catalonia EU-membership is a crucial matter.”

“In this regard, the likely Spanish veto against EU-membership for Catalonia appears to be a serious dissuasive weapon. Even if the Catalonian government tries to minimize the risk of having a non-European Catalonian republic, it remains the most likely scenario in the case of independence. Under Article 155 of the Constitution, Rajoy could intervene directly in the running of the regional government and simply drop the referendum. We could then see the police suspending by force the Catalonian government. This remains however a last resort solution.”

“Little doubt that in September, bond yields should be impacted and a risk premium should widen the bond yield spread of both Catalonian and Spanish government with other major European economies.”