Focus on Finance

In the dark

No one, absolutely no one, knows what's going to happen next in the Catalonia saga. That is the only real conclusion to be drawn from the last few weeks, during which the Spanish media has been entirely consumed with the possibility of the region's proposed split from Spain: we've seen nothing but endless rolling “news” essentially filled with different people saying in different ways that they have no idea what's going to happen next.

That is especially true today, when the Spanish Senate convenes to vote on whether Mariano Rajoy's government should dust off Article 155 of the 1978 Spanish Constitution and effectively suspend Carles Puigdemont's Catalonian leadership. Article 155 gives the national government authority to take direct control of a regional administration if its behaviour is threatening the unity of Spain. Up until now, its use has never even been considered. This is truly unchartered territory.

Political uncertainty about the next development in the Catalonia drama is reflected in the vagueness of predictions about its economic impact. So far, only two institutions have guessed (I choose the word carefully) an exact cost of the protracted standoff between Madrid and Barcelona. The Spanish government estimates that the conflict will slow Spain's economic growth next year by three-tenths of a percentage point, and has accordingly dropped its 2018 forecast from 2.6% to 2.3%. Spain's Independent Authority for Fiscal Responsibility (Airef) thinks the impact could be greater, and has predicted GDP expansion slowing between four tenths of a percentage point and 1.2%; in more concrete terms, it predicts that the cost of the crisis for the Spanish taxpayer could be up to 13.4 billion euros.

Airef is erring on the side of caution in forecasting a bigger economic impact than that predicted by the Spanish government. And it's surely right to do so, not least because the Catalonia issue looks unlikely to be resolved by the end of this year. Indeed, Gonzalo Gortazar, the boss of La Caixa SA - Catalonia's biggest bank and one of the first to move its headquarters out of Barcelona after 1 October - said this week that the key factor is how quickly this mess can be tidied up: “If [the Catalonia crisis] drags on...obviously we will expect the impact on GDP [to] be a bit more than moderate,” he said carefully.

“A bit more than moderate” is awfully vague, but it's all we're going to get for now, even from supposed experts. Foreign banks are also struggling to be more specific in their assurances to investors about Catalonia vs Spain: in a note released this week, American behemoth JP Morgan fretted to clients that “it's difficult to predict the intensity with which [Spain's] central government will respond [in applying] Article 155”. That's because predictions depend on precedents and from here on in, there are no precedents for either Rajoy or Puigdemont to fall back on. They, too, are in the dark about what's going to happen next.