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THE EURO ZONE

A return to normality

The last few days have seen Spanish prime minister Mariano Rajoy in Catalonia, asking Catalans to “restore normality” in the regional election he has called for December 21st. Rajoy hopes that Catalans will quash the secession movement once and for all (or at least for the moment) by voting for parties who oppose the region's independence; and if such a vote is returned, says Rajoy, his government will raise Spain's official growth forecast for 2018 to around 3%, up from the current 2.3%. For Rajoy, the medium-term health of the Spanish economy depends on the December 21st vote.

Rajoy's administration is understandably concerned about what might happen if the Catalonia crisis continues into next year. Indeed, the Popular Party lowered its estimate for next year's GDP expansion from 2.6% a few weeks ago, in light of the chaos unleashed by an illegal referendum on Catalonian independence on October 1st.

The EU is slightly more optimistic than the Spanish government in its forecast for 2018: currently, its estimate for GDP expansion stands at 2.5%, with the caveat that that figure might have to be revised if the Catalonia issue isn't resolved by the end of this year. Brussels has also predicted, somewhat strangely, that Spain will reduce its budget deficit to 2.4% of GDP in 2018, thus bringing it within their EU-wide limit of 3%. The EU seems to be forgetting that during its time in office, Rajoy's government has missed every single one of the EU's budgetary targets.

The outcome of the December 21st election in Catalonia will impact on Spain's ability to meet its most pressing fiscal goals in 2018, from bringing its unruly budget in line to maintaining GDP growth. Which begs the question of what's likely to happen when Catalans head to the ballot boxes in four weeks' time. The latest polls suggest that it will be a knife-edge vote: a GAD3 survey a couple of weeks ago indicated that pro-independence parties will gain a slim majority in the Catalan parliament, whilst a poll in La Razon newspaper showed that secessionists will win the most seats (65) but miss out on a majority.

Rajoy's life would undoubtedly become a lot easier if Catalonia's pro-independence parties are beaten on December 21st. But if secessionists do find themselves with a parliamentary majority after the vote, then a new and complex phase of the Catalonia issue will begin. Currently, the main separatist parties disagree on whether to push on for full independence or campaign for greater regional autonomy, even though Catalonia currently enjoys a substantial amount of independence from Madrid (or at least it did before Rajoy seized control of the region). Either way, the secessionists want the inauguration of a new status quo in Spain - precisely the opposite of the restoration of normality for which Rajoy is hoping.