Group Economics
Daily Insight
Macro & Financial Markets Research Aline Schuiling, Kim Liu & Nick Kounis
Spain’s political uncertainties
+31 20 343 5616
29 September 2015
Catalonia’s election did not result in a majority of votes for the pro-independence parties … … but Spanish bonds will continue to be driven by political uncertainty until the general election ECB officials send mixed signals on how quickly QE plus decision might come
No majority of votes for Catalan independence parties… The regional elections in the Spanish state of Catalonia did not
Spain: polls general elections
result in a majority of the votes for the pro-independence
% (average eight most recent polls)
parties. Combined, the Junts pel Si and CUP won just under 48% of the votes, although they did win an absolute majority of
35 30
the number of seats (72 out of 135) in Catalonia’s regional
25
parliament. The pro-independence parties are wide apart in the
20
political spectrum (from far-left to centre-right), so there is not a
15
lot that binds them together besides their aim for
10
independence. Therefore, this goal should stay high on the
5
agenda of the new regional government. Still, the chances of a
0 Jun-13
unilateral declaration of independence seem limited at the moment, given the lack of a majority of votes and the financial
Jan-14
Jan-15
People's Party
Socialist Workers' Party
Podemos
Citizens
difficulties of such a step. Moreover, according to the Spanish constitutional court, this act would be illegal, while the Spanish government will not work with Catalonia to make it a happy
Source: Various polling institutes
divorce. More likely, the way forward will be that the new Catalan government tries to negotiate with the central
ECB officials grapple on timing of move
government about a more favourable tax treatment and/or
Various ECB Governing Council members have given
some extra decentralisation of power towards the region.
speeches over recent days. In general they point to the
These negotiations will probably start after December, when
likelihood of further monetary easing, but there are mixed
the general elections will be held.
messages on how quickly this may come. In general, some Executive Board members (Draghi, Praet and Coeure) are
… but political uncertainty to remain until general election
suggesting that there will be no hesitation and that they will act
As we mentioned in our Fixed Income Watch, ‘Catalonian
with force. On the other hand, some national central bank
catastrophe?’ Of 25 September (Euro Rates Watch -
governors (Nowotny, Vasiliauskas) have said they need more
Catalonian catastrophe? - Insights), the real political test for
time, with no discussion of new measures until December. The
Spain will be in December during the nationwide general
exception to this rule is Executive Board member Sabine
elections. We think the most likely outcome is that the next
Lautenschlaeger, who also said it was ‘too early’ to talk about
government will either be a Partido Popular (PP)-minority
broadening QE on Monday. Having said that, she is clearly on
government or PP-led coalition. That said, during the rest of
the extreme hawkish side of the spectrum of the Governing
this year the Spanish government bond market will probably
Council.
continue to be driven by political uncertainty, implying that there will remain a political risk premium in SPGBs. In the long
October versus December
run we are still supportive of Spanish bonds. The fundamental
Our base case is that the ECB will step up QE before the end
economic outlook is strongly in favour of SPGBs and we think
of this year, by increasing the size of monthly purchases by
that relatively benign political outcomes are the most likely
EUR 20bn. We see October as more likely than December at
scenario. In addition, we expect the ECB to announce an
this stage, though the mixed messages from officials have
expansion of its QE programme by increasing its monthly
made us less certain about this. So the chances of a delay to
purchases before year end (see below). This should support
December have increased over recent days.
credit spreads and should revive the scarcity trade.