On Friday, our Weekly Wrap described how some of the friction between Catalonia and Madrid was subsiding (Read last week’s Weekly Wrap here). But the news flow out of Spain is anything but calm.
Things have moved fast since then. What you need to know:
- Madrid calls for December elections. On Friday, Mariano Rajoy’s government removed Catalonian leader Carles Puigdemont from office after invoking Article 155. Madrid has said that elections for a new Catalonian government will be held on December 21st.
- Puigdemont seeks asylum in Brussels. The former Catalonian leader has fled to Belgium, where he seeks asylum. Had he stayed in Spain, he could have faced up to 30 years in prison.
- Separatists have lost momentum. Early predictions for the December elections call for a win for pro-Spanish parties. Puigdemont will form a government in exile, but the future is looking bleak for pro-independence Catalonians. According to Bloomberg, “A poll on Monday showed just 34 percent backed independence, even as 76 percent want an official referendum on Catalonia’s status to be allowed.”
- Madrid may have a short-term handle on the situation, but what happens next? Since the events of the past few weeks, Catalonians are more amenable to remaining part of Spain. However, there is still a lot of discontent with the relationship with Madrid. Catalonia has operated as an autonomous state, and its citizens and government have long wanted more autonomy from the central government. Even without a complete secession, this desire has not changed. As Leonid Bershidskhy noted in Bloomberg View, “[T]he bigger problem remains unresolved: Catalonia will be a source of instability until its people are satisfied with the region’s level of autonomy (not independence, whatever the hotheads might say). Fixing that is a job for more flexible leaders with more long-term thinking.
As always, what does the market think about this?
Simply put, investors are happy as the seas are calm.
- The Spanish 10-year yield is trading at 1.48 percent as of Monday (10:45 am ET). That’s the lowest level since September 9th.
- The spread between Spanish and German bonds is 1.12 percent. That’s the lowest level since September 19th.
- The IBEX 35, the main Spanish stock index, is trading at 10,513. If the market closes at this level, that would be the highest closing price since August 16th.
Takeaway: Investors like certainty – that’s why Spanish bonds and stocks are rallying today. But the long-term plan for Catalonia is still murky. The Catalonia independence story may be at a lull, but it’s far from over.
Cover photo: calafellvalo (Flickr Commons)