Catalonian referendum results

The Catalonian government held an independence referendum, despite legal efforts by the Spanish government to prevent it.

On Sunday, the Spanish police tried to block some of the polling stations and seized ballot boxes. The vote took place amid a fair amount of violence: Catalonian authorities claimed that over 800 people were injured.

The exact outcome of the referendum is unknown. The Catalonian government claimed that more than 90% of the 2.26 million Catalans voting backed independence ? a participation rate of 42.3% (slightly higher than in 2014). Yet these numbers cannot to be taken at face value given all the events leading up to and during the voting that could have affected the outcome.

Nonetheless, Carles Puigdemont, the Catalonian president, claimed that the outcome of the referendum meant that “the citizens of Catalonia have won the right to an independent state in the form of a republic” and promised to take actions in the coming days. Meanwhile, Spanish Prime Minister Mariano Rajoy ignored the apparent referendum outcome, saying that “there was no referendum today in Catalonia”.

What do we expect now? No significant changes, but some negative economic impact at the margin and a period of political uncertainty. We do not expect immediate changes by the Spanish government as it said the referendum was illegal. However, we expect tensions to escalate in the coming days and some strikes ? already, separatist groups have called for one on Tuesday – which could negatively impact the Spanish economy if prolonged for an extended period of time.

In our view, the Spanish government has three options: 1) ignore the outcome and take no action (unlikely, in our view); 2) find a political solution (the best option, in our view, but one which would take time to implement); or 3) use Article 155 of the constitution to suspend Catalonia’s autonomy (which could lead to more tension but could also force a political resolution). Indeed, for Albert Riviera, Ciudadanos’ leader, using Article 155 is a way to get a local vote going in Catalonia, which could be a way to bring the independence discussion back into a broader electoral and political context ? with all Catalans expressing their vote, legally, on the topics that matter for the region.

The Spanish government will need to show political skill, as failure could see it losing support from other regions and, as it is only a minority government, we cannot rule out the possibility of new general election.

The eventual resolution of the situation will also depend on the reaction of Catalonian leaders, who could: 1) decide to find a political solution, which could ease the situation; or 2) ignore the Spanish government and declare independence, which could lead to the use of Article 155.

Market reaction more or less muted so far. Spain’s problems appear nonsystemic, with little potential to create fundamental uncertainties in the euro area. Spain is a very pro-European country, and we expect it to be supportive of the various measures suggested by France’s President Macron