Spain 2015: Political Risk - Afi / December 2014

8/10/2019 Spain 2015: Political Risk - Afi / December 2014

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December 2014

Spain: Political Risk

Afisdedicated website for Research on Spain (www.afi.es/ros)
http://www.afi.es/roshttp://www.afi.es/ros


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Key pointsChanging political landscape in Spain

Surveys point to further fragmentation of the political landscape ahead of next yearselections, implying a more left-leaning Parliament, dominated by three parties: PP, PSOE and Podemos.

Podemos is following in the footsteps of Syriza and MS5 and faces similar challenges to consolidate its rise in the

polls. The outcome of the quickly unfolding Greek situation will also be key for the future of Podemos.

Besides the continuation of positive economic headlines, we see 3 key factors affecting the final outcome of next

general elections: (i) lasting impact of corruption scandals, (ii) perceived economic competence and (iii) extent of

abstention by PP voters

Catalonia

Opinion polls suggest a split in terms of support for independence amongst Catalans but a clear majority express a desire

for a change from the status quo.

The result of the 9N vote is subject to interpretation, but sufficient to give President Mas the momentum to set out his own

roadmap, which contemplates early elections within 6 months.

Opinion polls suggest pro-independence parties could obtain a narrow majority in early elections. CiU-ERC need to reach

agreement on format of early elections

Options for negotiation under legislature of current Spanish government are limited by Constitutional and political

considerations.

In alltail risk scenarios, retaining Euro membership is the key element affecting overall costs in any negotiation over

separation. In order to retain access to the Euro as a member of the Eurosystem, Catalonia would need to ensure EU

membership.

We identify 6 channels of impact for Spain in the case of Catalan independence, with the overall impact potentially being

quite negative in the short and medium term.


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Political fragmentation

- Latest opinions polls and implications for new Parliament

- Rise of Podemos

- Key factors in Q415 elections

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3


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4Source: Afi, CIS, Metroscopia

A changing political landscape: surveys point to a transition from a bipolar

electoral system (PP-PSOE) to a tri-polar system (PP-PSOE-Podemos)

Estimated vote intention: CIS (% of total)

May 2015

Regional elections in 13 of 17 regions (excl. Catalonia, Galicia,

Andaluca and Basque Country) Municipal elections

November2015

Deadline for general elections at national level

November2016

Deadline for elections in Catalonia

Risk of early elections being called in Q115

Estimated vote intention: Metroscopia (% of total)

Votes in EP elections of 2009 & 2014 (million votes)


5/19 5Source: Afi, CIS, Vanguardia

implying a more left-leaning Parliament, but also the need for coalitions in the

absence of stable minority government options

PSOE the

kingmaker?

PP to look to

strengthen

its social

policy

credentials?

Left Right Other


6/19 6Source: Afi, opinion polls

Podemos is following in the footsteps of Syriza and MS5 and faces similar

challenges to consolidate its rise in the pollsDetermining factors in success of peripheral populist parties:

Organisational capacity (at all levels) beyond personal charisma of leader Centrality of programme attracting mainstream voters without diluting the clarity of original messages

Ability to react of traditional parties (e.g. Renzi), fight for the centre-left

Reaction of centre right voters: abstention? alternatives (Golden Dawn / Northern League)?

Treatment of majorities in electoral system (e.g. existence of majority premia)

Podemos

Syriza

M5S

Anti-elitist (caste)

Pro-Euro ?

Anti-austerity

Debt renegotiation

Increase fiscal pressure

(fraud, taxes on rich)

Renationalisation ?

Increase in minimum wages,

more social support

Anti-immigration ?

Compatible?

Evolution of vote according to polls: Syriza, Podemos, 5SMA minimum common denominator


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Key factors affecting final outcome: (i) lasting impact of

corruption scandals, (ii) perceived economic competence and

(iii) extent of abstention by PP voters

7Source: Metroscopia, CIS, Llorrente y Cuenca

Direct vote intention (%)

Flows of votes between Spanish political parties (millions)

Three main problems in Spain (%)Party with most realistic programme

capable of addressing crisis (%)


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Catalonia

- Origins of the current situation and support for independence

- 9N vote

- Mas roadmap to independence

- Polls on early elections

- Tail risks- Market reaction to date

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Origins of the current situation

Factors

influencingnationalistsentiment in

Catalonia

Historicalfactors

CatalanStatute

2007/2010

Regionalfinancing

model

Economic &Institutional

Crisis

Governmentprogramme

Weaknessof moderate

voices

Longstanding perception of

subsidising rest of Spain

Perceived under

investment by state in

Catalonia

Key sections reinterpreted /

struck down by

Constitutional Court in 201

Centralisation focus

of reforms e.g.

Education reform,

Single Market Law

Collapse of PSOE

vote, weakness of

monarchy

Rising unemployment and tainting of

Spanish brand by corruption

scandals

Failure to reach an

agreement with central

government on key elemen

Growing public resonance ofhistorical events

e.g. Catalan National Day

Growing strength of

far left Republican

ERC in Catalonia

Increased vulnerability ofCatalan public finances and

dependence on state e.g. FLA,

Providers Fund

Hard line attitude of

current government

on dialogue

Pro-independence sentiment in Catalonia

is latent and longstanding and has its

history in the absorption of Catalonia into the

Spanish state.

Recent resurgence can be linked to the

Constitutional Court decision in 2010 to

strike down key elements of the CatalanStatutewhich was designed to find a legal

expression of Catalonia within Spain.

The failure to introduce meaningful

reform of the regional financing systemto

address long-standing Catalan perception ofsubsiding the rest of Spain has further

fuelled nationalist sentiment.

The economic crisis particularly affected

the Catalan economy and public finances

and fomented further the desire for

disassociation with the rest of Spain.

An apparent lack of openness to dialogue

and a hard nosed attitude to (pro-centralising) reform by the government may

also have further fuelled sentiment.

The weakness of potential moderating

voices (PSOE, Monarchy) have provided

little offset to rising far left republicans, ERC.

Factors driving pro-independence sentiment in Catalonia


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10Source: Afi, Metroscopia, CEO.

Opinion polls suggest a split in terms of support for independence amongst Catalans

but a clear majority express a desire for a change from the status quo

Metroscopia: If a referendum in Catalonia were to include theoption of a Third Way, how would you vote?

CEO: Catalan voter preference over status of Catalonia (%)


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9 November vote: a result open to interpretation

11Source: Afi, CEO, Reuters

Latest CEO survey (October)

9-N (% of participants)

2.3m participants

9-N (% of eligible)

of 6.2m potential

voters

Do you want Catalonia to

become a State?

If yes, do you want that

state to be independent?


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12Source: Afi

but sufficient to give Mas the momentum to set out his own roadmap

Differences with ERC: i. ERC no joint platform before early elections, formation of pro-independence coalition ex-post

ii. Single vote on independence with immediate UDI


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13Source: Afi, Vanguardia, GESOP.

Opinion pollssuggest pro-independence parties could obtain a narrow majority in

early elections. CiU-ERC need to reach agreement on format of early elections.Current and projected Catalan Parliament by support for independence

Pro-independence parties

Breakdown of share of vote, average of post 9-N surveys

Breakdown of Catalan Parliament (vote on a unitary basis) Breakdown of Catalan Parliament (vote on a joint platform basis)


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14Source: Afi

Options for negotiation under legislature of current Spanish government are

limited by Constitutional and political considerations

Likelihood of agreement Impact on independence debate

1. Easing of financing costs FLA and FFPP conditions have already been improved

Can be sold by government within framework of generalised

improvement in conditions for all regions

Minimal may provide some additional breathing

space to existing Catalan government

2. Infrastructure sweeteners Would enable government to provide direct response to some of Mas

23 proposals

Could be presented within wider Juncker plan e.g. energy

interconnection with France

Modest would allow national government to counter

arguments of under investment in region, and provide

a concrete win for Mas. But would not resolve

underlying dynamics.

3. Reform of regional financing

model Postponed by government until 2016, but could form part of post-

elections agreement

Impossible to negotiate bilaterally: other regions have a stake

Insufficient funds to offer Basque-style model

Fundamental changes require Constitutional reform

Significant an opportunity to address longstanding

bone of contention in Catalonia but no longer likely to

be sufficient without devolution of competences

4. Devolution of additional

competences e.g. education Would probably require Constitutional reform (dissolution of

Parliament)

Anathema for large segments of PP party

Significant together with reform of financing model,

could be sufficient to allay current tensions. But could

lead to longer-term fragmentation of Spanish society.

5. Federal model May provide a more structured alternative to keep Spains regions

together Would require major Constitutional reform (dissolution of Parliament)

and reopening transition consensus

Very significant depending on exact design, may

provide a longer lasting solution to anti-centrifugalforces in Spain

6. Legal referendum Would require Constitutional reform Unthinkable for Spains main parties

Uncertain would address current frustrationsbut anarrow result (either way) could further raise tensions


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Independence is a tail risk, but its impact would be largespecially for Spain

Source: Afi


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To date markets have been watchful but have not overreacted. Dependence on state

finance the key factor under review by ratings agencies.

Vote in favour of

independence in

Scotland

Mas calls off formal

consultation

9-N

Forecasts

11%

35%

4%

11%

19%

21%

5%

55%

4%

7%

18%

11%

Sources of finances for Catalan government (% of total)Spread Catalan government debt and SPGB (bps)

Source: Afi, Reuters, Bank of Spain

Rest of World


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Afi - Advisory on Spainservices

(1) Territorial cohesion (Catalonia, etc.), Constitutional reform and institutional architecture, State-Regions funding model, etc.

(2) Political stability and capacity to reform, poll & survey analysis, rise of extremist and/or populist options, etc.

(3) Implications for Spain of external developments in world-wide geopolitics(focus on Europe)

Macroeconomics

Banking sector

Public finance

Sector analysis(RE, Energy, Consumer)

Political risk

Institutional1

Political Outlook2

Geopolitics3

Macro risk


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Dedicated website for Research on Spain (www.afi.es/ros)

Afi - Advisory on Spainservices
http://www.afi.es/ros/comun/default.asphttp://www.afi.es/ros/comun/default.asp

Spain 2015: Political Risk - Afi / December 2014

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