After leaving the negotiating table with Catalan authorities last week, rejecting demands for an independence referendum, the Spanish government reaffirmed it would not discuss the “right of self-determination”. In a tense political context – the trial of twelve Catalan separatist leaders started yesterday in the Supreme Court – the vote of the 2019 budget was hence rejected by more than the majority of parliament as separatist parties refused to withdraw their amendments, along those of center-right Partido Popular (PP) and other regionalist parties. We expect PM Sánchez to call for early elections either in late April, May or in the fall. The Socialist party still tops polls; yet on average in 2019 polls give a slight majority to the center and right-wing parties PP, Ciudadanos (Cs) and Vox (51% together) which could form a coalition. It is not Spain’s first episode of such political uncertainty, and the impact on the economy should remain limited. A coalition of PP, Cs and Vox would advocate for further fiscal discipline (in contrast to the socialists), pro-business and pro-European reforms. Yet their harsh stance over the Catalonia issue could potentially re-ignite tensions over independence.
