Separatists will likely win Catalan elections

Podcast with update after the elections (in Dutch)

Today, Catalans will go to the ballot box to vote for a new regional government. Since 28 October the region has been controlled from Madrid. After firing the rebellion regional government, Spain’s Prime Minister Rajoy called new regional elections for the earliest date possible. He claimed it was to restore democracy as soon as possible. Yet conveniently for unionist parties and the central government, the early date also shortened the time window for separatist parties to reorganize and agree to run on a joint list. Indeed, the PDeCAT of regional ex-president Puigdemont and his former coalition party ERC failed to set up a joint list as they had done prior the last elections in 2015 (Junts pel Sí). The lack of a list may cost the separatists votes, but it’s too close to call whether they will also lose their absolute majority or not. Exit polls will only come in at 8pm tonight, but at this moment, a separatist-led government seems the most likely outcome.

Currently, the liberal unionist party Ciudadanos and the centre-left separatist party ERC are neck and neck in the polls (figure 1). Based on an average of 14 polls conducted last week, Ciudadanos would win the most votes. That said, in the polls ERC gets about as much seats (32) as Ciudadanos (32-33) due to the regional proportional based system. The system over represents rural areas in the regional parliament, which generally are separatist strongholds.

Absolute majority might be lost

Puigdemont, who runs on a list called Junts per Catalunya (JuntsxCat), polls at 27 seats. Accordingly, the former coalition Junts pel Sí polls at 59 seats, implying a loss of 3 seats. On top of that, the radical separatist CUP stands to lose 1 or 2 seats. All in all, based on last week’s polling, separatist parties could gain 67 or 68 seats compared to 72 in 2015 elections. With 68 seats necessary for an absolute majority in the 135 seats parliament, it is going to be a close call. Whereas the pro-independence block still has a chance to gain an absolute majority, even a simple majority is unlikely for the unionist block. Ciudadanos, the Socialists (PSC) and the Partido Popular (PP) all together have performed weaker than JuntsxSí, ERC and CUP in almost every poll last week. On average they would receive 44 percent of the votes, resulting in 58 to 59 seats.

Now what if both blocks fail to gain an absolute majority or if the relatively moderate separatists ERC and JuntsxCat fail to reach an agreement with the radical CUP?

In such an event, the list CatComú-Podem could act as a tiebreaker. The list currently polls at 8 to 9 seats, implying that it could certainly help to guarantee a majority for the separatist block, and possibly also for the unionist block. CatComú-Podem is a left-wing alliance also comprising the regional branch of Podemos. Its stance on independence is a bit more ambivalent than that of the other parties. The party opposes unilateral independence, is overall not in favour of independence, but does plead for a referendum on the matter and strongly opposes the force used by the central government and direct rule from Madrid. Based on ideology across themes and current polling numbers they are seemingly more likely to give outside support to the separatist bloc than to the anti-independence block. This would certainly limit the risk of a renewed unilateral declaration of independence and might also soften the confrontational stance towards Madrid.

Even if the separatist parties could agree on forming a minority government with the outside support of CUP, a fresh push towards unilateral independence is unlikely. All polls released since 1 October have consistently showed that the independence parties together can count on less than 50 percent of the popular vote (on average 47 percent). If realized, this would weaken the separatist parties’ mandate. However we must add that this was also the case in the 2015 election and that it did not quite slow them down in the past two years.

So, perhaps more importantly, developments since the unilateral declaration of independence (UDI) on 27 October have showed that unilateral independence is not a panacea, in fact it turned out to be quite the opposite: the international community did not recognize the republic of Catalonia, and partly as a consequence, headquarters of large businesses fled towards other Spanish regions; Madrid took over control; independence leaders were jailed and might be sentenced very long jail times; investment and tourism activity slowed, and the labour market weakened. On the back of recent developments, official figures throughout the pro-independence camp (except for CUP members) have openly acknowledged that unilateral succession might no longer be the best option. Moreover, the fact that several members of a potential new government could be in jail or in (voluntary) exile in Belgium, could make day-to-day operations in parliament difficult. Especially if the majority is very slim.

All in all, a renewed push for unilateral independence is unlikely, at least in the coming years. Still, while tensions are unlikely to return to levels seen in October, it could take many years before tensions recede. As it will be extremely difficult to find a solution for the institutional crisis that is acceptable to both sides. But at the end of the day, we still believe that Catalonia will stay part of Spain with more (fiscal) autonomy. Ultimately, a change of the central government and the constitution are likely to be required to settle for long-term stability.

Since the referendum on 1 October, both hard and soft data have confirmed our expectation that the Catalan economy would likely suffer from ongoing uncertainty. Mainly due to expected weakened economic activity in Catalonia we downwardly revised our economic growth forecast for Spain in 2018 by 2 decimal points to 2.2 percent. So far, however, while the uncertainty has had an impact on Catalan investment, sales and tourism activity, the impact on economic growth for Spain as a whole seems to have been limited. Monthly activity indicators still suggest that the 0.8 percent quarterly growth in 17Q3 is also within reach for 17Q4. This compares to our expectation of 0.6 percent. Nevertheless, since we still don’t have the complete picture and tensions are not set to decelerate anytime soon, we stand by our projection of 2.2 percent growth in 2018.