The general elections held in Spain yielded a decisive result: the center-right PP party won a wide absolute majority in parliament, beating the outgoing socialist government. With a mandate to cut and the ability to carry out the policy, Mariano Rajoy’s government is expected to get Spain out of the crisis – at least in the bond markets.
But when examining the election results, there is a significant point of friction in the northeast of the country.
Out of 17 regional communities, Rajoy’s Partido Popular (PP( party won 15 – landslide victory also at this resolution. Where didn’t it take the majority of seats? One community is the Basque Country at the north of the country. Local Basque parties won the majority of seats, leaving the main parties well behind.
This small region always had tensions with the central government, but in recent years, the situation has improved: the terrorist organization ETA laid down its arms and the economy is doing relatively well: the self managing system works quite well.
Catalonia Votes for Local Parties
The second region that didn’t vote for PP is in northeast of the country, home to Spain’s second most populous city: Barcelona. For the first time, the local Catalan CiU party won the region and secured 16 seats in parliament. Also other local parties secured seats in the national parliament, despite a relatively low turnout.
This region voted very generously for the socialists in the previous elections and now shifted its vote to local parties. The PP party is disliked in this region, to say the least.
Catalan Economy and Independence
There is a growing number of Catalans who seek independence. In the past few years, privately organized surveys and referendums were held across the region, asking a question: Do you want Catalonia to become an independent country within the EU?
The use of the Catalan language is on the rise and perhaps most importantly, there is growing awareness about the fiscal issues.
Catalonia has always been an industrial region, and now enjoys exports of wine as well as a prosperous tourism industry. The citizens pay taxes to the central government, but not every euro that is paid to the central government returns to the local economy.
While there are disputes about the magnitude of this phenomenon, there is a growing sense that Catalonia is subsidizing other regions, and this is adding fuel to the national tensions.
Catalan Deficit Threatening Spain’s Rating
These internal tensions aren’t isolated to Spain. The debt of the Spanish government isn’t so high – debt to GDP is lower than in Germany. The weaker link in Spanish debt is the regional governments.
When the CiU party came to power in Catalonia at the end of 2010, it “discovered” a lot of debt. Moody’s already explicitly warned that Catalonia’s debt has implications on Spain’s credit rating.
The tensions are likely to rise now:
- The center-right PP is traditionally less friendly to Catalonia than the socialist party.
- Rajoy plans to impose more cuts and Catalonia is no exception.
- The gains made by Catalan parties will likely allow them to raise their voice and demand for less cuts, due to the aforementioned subsidizing of other regions.
So, while the new government has a big absolute majority on the national level, the tensions in Catalonia can weigh on the plans, on Spain’s credit rating and on bond yields, as Spain needs to refinance a lot of debt in 2012.
Further reading: Euro to Crash When German Yields Join the Party
You can see more about the tensions in this video:
SPAIN’S SECRET CONFLICT from Jordi SF on Vimeo.
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