Wednesday, October 22, 2014

Moody’s foresees a common pro-independence platform in early elections to be positive for Catalonia

The international rating agency Moody’s published on Tuesday an analysis of the current political situation in Catalonia regarding the alternative non-binding referendum vote scheduled for the 9th of November and the potential early elections. Moody’s considers that early Catalan Parliament elections are the most likely scenario, and emphasizes that the Catalan Government has committed itself to respect the legal framework in all scenarios. 
In addition, the rating agency also considers the creation of “a common platform” with which pro-independence parties would run in the elections to be the most likely outcome. 
On top of this, it predicts that such a common platform would be likely to win the elections and to have a “strong” position to negotiate a better fiscal deal for Catalonia within the current Spanish Constitution. However, in such scenario, Moody’s does not consider independence and thinks that all the political tension will end with a better fiscal deal “as the political debate surrounding independence is not new”. 
In this vein, Catalonia’s credit rating is likely to improve while Spain’s would worsen, taking into account Catalans’ “potential to generate revenue for the central government”. At the same time, it states that if pro-independence parties were running separately, this would increase political uncertainty and would have a negative effect on both Spain’s and Catalonia’s ratings.


Moody’s welcomes the alternative non-binding referendum process scheduled on the 9th of November, as it reduces political uncertainty. The Catalan “government’s decision to respect the Constitutional Court’s suspension of the non-binding referendum process reduces near-term political uncertainty for both Catalunya (Ba2, positive) and, given the region’s economic significance, Spain (Baa2, positive)”, reads the agency’s report.

Moody’s emphasises that “the regional government has always declared that it would act within the realms of the law”, in order to explain why the original non-binding referendum vote that has been temporarily suspended by the Constitutional Court has been replaced by “an unofficial vote on Catalunya’s independence” on the 9th of November. In fact, Moody’s define the alternative democratic participation process as “a way to allow Catalan citizens to express their views on independence while respecting Spanish law”, since “the unofficial vote will have no legal implications, with no official census of voters, election commission or support of public servants”, it stressed.

Negotiations for a better fiscal deal for Catalonia

Furthermore, it considers that the current situation is likely to lead to a debate to renegotiate Catalonia’s current fiscal scheme within Spain and get a better deal, in order to obtain “greater fiscal autonomy”. In addition, it could “shift to greater devolution within Spain”.

The rating agency does not forecast independence, stressing a poll published by Madrid-based newspaper ‘El País’ stating that a majority of Catalans want to stay within Spain with greater fiscal and political powers. However, at the same time, Moody’s recognises that the Spanish Government is not likely to offer such a deal any time soon. “While we expect negotiations to take place between the region and the central government in the coming months, we do not expect the central government to offer significant concessions to Catalunya before 2016 given the May 2015 municipal elections and national elections (which are expected by the end of 2015)”, is states. Therefore Moody’s underlined that, “as a result, the political relationship between the central government and Catalunya will remain strained, with the resultant political noise and economic uncertainty continuing throughout the coming year”.

However, it also adds that the current political tensions have not affected the Spanish Government’s liquidity transfers to the Catalan Executive. In fact, Moody’s predicts that by the end of 2014, 46% of Catalonia’s total public debt to be Spanish Government’s loans, since the Catalan Government is not allowed by Madrid to access international financial markets since 2012 and the Spanish Executive has become its only bank.

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