Spain: What’s next after Catalan independence referendum - HSBC

The Catalan government, after proclaiming victory in Sunday’s referendum, is calling for a unilateral declaration of independence and pressure is mounting on Prime Minister Rajoy to take over control of the region, according to Fabio Balboni, European Economist at HSBC.

Key Quotes

“According to the Catalan government, more than 2m people defied attempts by the Spanish government to stop Sunday’s referendum. It said 90% of them had backed independence on a turnout of 42% (El Mundo, 20 Sept). The result is no surprise to us, especially after the Spanish government’s attempts to stop the poll taking place and widespread clashes between voters and police on the day. This could have meant that large numbers of those opposing independence did not go to vote.”

“However, with the Spanish Constitutional Court having deemed it illegal, the referendum result in itself is less important than what happens now. The leader of the Catalan government, Carles Puigdemont, said after the referendum that he intended to go to parliament for a vote on a unilateral declaration of independence. Mr Puigdemont confirmed that this should happen within 48 hours of the announcement of the official results, in line with the law launching the referendum, but did not state when exactly the results will be known. Given a majority of pro-independence MPs in the Catalan parliament, it seems likely the motion will pass. The next steps could be to pass a new Catalan constitution, and possibly start establishing regional institutions such as a Finance Ministry and a tax authority.”

“Prime Minister Mariano Rajoy, leader of right-wing Partido Popular (PP) has refused to acknowledge the referendum result, given its unconstitutionality, and is likely to refer a possible declaration of independence to the Spanish Constitutional Court. But that might not be enough to stop the Catalan independence threat. On 2 October, Albert Rivera, leader of reformist centrist party Ciudadanos, asked Mr Rajoy to trigger Article 155 of the Spanish constitution, allowing the Central government to effectively take over the government of Catalonia.”

“But Mr Rajoy, who leads a minority government, needs to tread very carefully to avoid generating possible political instability in Spain.”

“We see three scenarios from here:

• The first is that the Catalan government back-tracks on its pledge to proceed towards unilateral independence, and decides to sit down with the Spanish government to negotiate a new financing system for the region, and possibly more autonomy on other aspects. Last week Mr Montoro made an opening bid to the Catalan government, saying the central government was willing to make concessions if Catalonia back-tracked on independence, even if that might put more pressure on the central budget and increase the risk of fiscal slippage. Following a Catalan government meeting on 2 October, Mr Puigdemont said that "this moment warrants reflexion" (El País, 2 October). However, Catalan leaders have already made it clear they are past negotiating, and their stated intention to move forward with the independence bid suggests such a scenario is unlikely.
• The second scenario is that the government ignores the independence threat, and limits itself to referring the matter to the Spanish constitutional court. This could lead to legal and financial penalties against some of the pro-independence Catalan leaders, but no major escalation of tensions between Barcelona and Madrid. Such a scenario, however, would only be possible in our view if the Catalan government does not follow up on the independence declaration with more concrete steps towards independence, such as the ones mentioned above.
• The third scenario is a further escalation of political tensions which eventually leads to triggering Article 155. Unless the PSOE decides to support this, we doubt that this could happen before the Catalan government makes a concrete move towards independence, but at some point it might be inevitable. This would eventually lead to early elections in Catalonia. A recent poll suggested the proindependence parties might then lose such elections (NC Report, 25 September), although the situation might be different after the events at the weekend. Furthermore, there is a risk that opposition parties might use this opportunity to cause a fall of the PP government. Podemos and PSOE would have the numbers to vote down Mr Rajoy's government, but not to elect another Prime Minister (unless Ciudadanos were to abstain) which is a requirement in Spain, which means a noconfidence vote is unlikely to succeed. However, at some point, if he is unable to govern, Mr Rajoy might have to call a snap election himself.”