“…one thing has definitely changed since [the November 2014 ‘participatory process’]: Spain's economy is recovering. That, for Prime Minister Rajoy, master of the long game, may yet be his best card.”
On 6 September, the parliament in Spain' s most important region economically, Catalonia, approved a bill which the pro-independence faction there claims legitimises an independence referendum which has been set for 1 October. 72 of the parliament’s 135 members voted in favour as 52 opposition politicians walked out of the chamber in protest. The bill was later signed into law by Catalan regional president Carles Puigdemont. In the event of a vote in favour the region’s (pro-independence) ruling coalition has committed to declare independence unilaterally and “immediately”.
Opposition party Ciudadanos has said it will call a vote of no confidence in the president to try to force an early election, thereby preventing the referendum from taking place; but it is very unlikely that this will succeed.
However, more daunting hurdles will be raised by Spain’s central government in Madrid. An emergency cabinet meeting will be held today and almost certainly agree to seek a ruling from the country’s constitutional court striking down the b ill. As the court ruled the November 2014 self-determination ‘participatory process’ to be unconstitutional it would be a major shock if it did anything other than confirm that the proposed referendum is illegal. Furthermore the central government may also seek to have the region’s current leaders and senior officials barred from holding public office, as it did successfully over the 2014 ballot with the then Catalan president, Artur Mas.
However, there is a risk that attempts to prevent the referendum from taking place and/or to delegitimise it before it is held may backfire. There may or may not be a majority in Catalonia in favour of independence (see below); but opinion polls consistently show a majority in favour of holding a referendum on the issue. Heavy-handed attempts to block it risk an impact similar to that which, in retrospect, I believe ‘project fear’ had on UK voters in last year’s referendum, ie an anti-establishment backlash.
Assuming the referendum does go ahead, recent opinion polls do not offer a reliable guide as to the outcome. Although the majority have put the ‘yes’ vote at no more than 44%, with just a couple of exceptions the ‘no’ vote has trailed, sometimes significantly, suggesting a large number of ‘undecided’ voters. Note too that there is no minimum turn-out requirement which may prove to be decisive if, as one could reasonably expect, pro-independence voters are more passionate on this issue than others. This certainly appeared to be the case in November 2014 when a turn-out estimated at between 37% and 40.6% (nb: no official figure was ever released) saw almost 81% vote in favour of an independent state in a self-determination ‘participatory process’.
Almost inevitably (despite the lessons to be learnt from trying to make political capital out of the 2004 train bombings in Madrid), August’s terrorist attacks in Barcelona and Cambrils are getting sucked into the campaign rhetoric. This too could, as was the case in the 2004 general election, also badly albeit in either direction. Or it could prove to have little or no impact on voting patterns despite the sharp uptick this year in the number of refugees (including, it is alleged, suspected Islamists) arriving in Spain from North Africa as other, more established, routes become more difficult.
All this being said, the economy may yet prove to be the decisive factor. It is absolutely clear that Spain’s economic travails following the collapse of Lehman Brothers in 2008 were a significant factor in the sharp uptick in pro-independence sentiment which we have seen in Catalonia over the past decade or so. But Spain has been a stellar performer economically in the eurozone in recent months. As the quote at the start of this article suggests, the recovering economy may yet prove to be (anti-independence) Prime Minister Mariano Rajoy’s “best card”.
One way or the other, to date investors have either not focused on this issue, doubt that the referendum will ultimately take place and/or believe that if it is held the outcome will be a vote to remain a part of Spain. But the Scottish and Brexit referendums both showed that investor attention only really gathers momentum in the three or four weeks immediately prior to the ballot; and the latter at least also showed (in my opinion) that nationalist passion can overwhelm economic interest. We should therefore expect related market movement between now and 1 October.
What if we wake up on 2 October to discover that Catalonia has voted for independence? Assuming the regional government stands by its word (which I do) and immediately unilaterally declares independence, beyond a full-blown constitutional crisis it is not at all clear what happens next. That uncertainty alone should be sufficient to trigger a very choppy time in financial markets. And it is uncertainty which may well drag on for a considerable period of time.