For the moment, Russia considers what’s happening in Catalonia as an internal issue and the country’s television channels are focusing on the violence in the region, without getting to the political issue itself. For the time being. Except if the problem stops being a domestic one and – for whatever reason- becomes an international one.
Catalan leader Carles Puigdemont had until 10 am on Monday 16 October to clarify whether he has declared independence or not. As was widely expected, he answered PM Mariano Rajoy in an ambiguous way, with neither a clear yes nor a no. He has until Thursday at 10 am to avoid the government applying article 155 of the Constitution.
Until the tense situation in the country is resolved, we believe the Spanish stock market will continue to suffer more than its European peers. As an example of this, in the week up until October 4, Spanish equity funds lost $229 million, according to market data firm EPFR.
Since the segregation process in Catalonia began, one got the feeling that it would be a serious risk to our country’s economic stability. Spain would pay a high price for the loss of its main economic region, which accounts for about 20% of GDP.
At the moment, the biggest losers in the Ibex 35 index after Sunday’s referendum vote in Catalonia are the banks, particularly the Catalan lenders. Both Sabadell and CaixaBank have acknowledged that if independence were to happen, they would move their headquarters to another autonomous region in Spain. In this way they would keep their access to the ECB’s liquidity and their clients would remain under the protection of the national and European Deposit Guarantee Fund. But perhaps it’s too soon to ring the alarm bells: while the Ibex dropped, other European bourses rose. This shows that Catalonia is still far from becoming a systemic risk for the EU.
A British newspaper asked this question this morning and it’s very pertinent. What has been happening in Catalonia recently puts Spain, a member of the EU, at risk of failure. Essentially what has taken place in Catalonia is the violation of the constitutional order and the rule of law.
The main problem from today onwards is not that Catalonia obtains independence, because there is zero possibility of that happening. It’s rather the weakening of Spain and Europe. Prime Minister Rajoy has the law on his side, but he is politically weak. He needs to look for back up outside, from Europe. But effective support, not notional.
The predicted train crash between the Catalan and the Spanish governments has now happened. But what’s next? It’s difficult for the referendum to be a success, but the the fact there is no independence in the short-term, doesn’t mean that the train crash is not going to have consequences in the medium-term.