Barclays on the Catalan situation

It seems possible that the conflict could drag on for the coming days, weeks and even months. If Article 155 is triggered in the near term, which appears more likely than not at this point, a key factor will be whether a hard or a soft version is implemented as the Article itself is very general and gives leeway to the central government to choose. Also critically, the severity and speed of the legal process against some of the separatist members of the government will play a role, in our view – ie, actions against those in breach of the constitutional legal framework. These factors evidently could be a catalyst for a response by the more radical supporters of independence, with the potential to trigger demonstrations, clashes with the police and further escalation.

We remain of the view that, in any event, regional elections seem a very likely outcome within the next few months.An important test will be whether or not a majority of the voters choose pro-independence parties. But even if the underlying demand for independence by a significant part of the Catalonian society remains (currently at c. 41% according to CEO July 2017), we believe independence remains highly unlikely as it would require important constitutional changes, which currently seem very remote. PP, PSOE and Ciudadanos represent more than two-thirds of the Spanish Parliament (254 over 350-seat Parliament). While constitutional changes to the current regional architecture are plausible, those changes seem unlikely to insert independence as an option as none of those three parties is in favour of it.

In terms of the central government, we do not anticipate a government crisis in the near term that could lead to general elections. Given electoral and fiscal considerations, a majority of the other regions are likely to be generally supportive of a firm legal response against independence. Therefore, PSOE and C’s are, in our view, unlikely to support a vote of no confidence against PP under the current constitutional crisis. We retain the view that general elections in Spain are unlikely in the near term. At the earliest, we see them taking place in Q4 18 or in 2019.

11 Oct 2017 - 14:09- Economic Commentary- Source: Barclays

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