MOSCOW, October 6 (RIA Novosti) — The political crisis in Catalonia has driven Spanish government bond yields to its lowest in more than 5 years as investors are becoming increasingly cautious about Spanish integrity.
The drop comes as Catalan president Artur Mas prepares his region for the independence vote, scheduled to take place on 9 November.
“Investors are pricing the risk of political instability in Catalonia. The independence issue has already been hurting the Spanish economy, and it’s not over”, Francesco Marani, trader at Madrid’s Auriga Global Investors SA, quoted by Bloomberg. The primary motivations for Catalonian independence arise are economic.
The Catalan region is the most productive in Spain, contributing 18.8% of the countries GDP. However, a bloated government and social programs around the country means that for every 100 euros of taxes paid to Madrid by Catalonia, only 92.3 return.
The countries systemic problems are undermining the region’s global competitiveness, as higher taxes generally damage investment attractiveness as well as negatively affecting manufacturing and finance, the proponents of independence argue.
The bloated government of Spain is a product of Madrid bureaucrats, who are using the productive capacity of Catalonia to benefit their own regions and secure elections. Social benefits are a major part the Spanish budget, as unemployment in Spain has averaged more than 25% since 2008. Youth unemployment is almost double the national average.
The Prime-Minister of Spain, Mariano Rajoy has called for “dialogue” Saturday, trying to ease tensions the same way which David Cameron and other UK leaders did with Scotland over the past several months. Madrid may de-evolve more governmental powers to Catalan for assurances they will not proceed with any more independence votes or referendums.
The Catalan independence movement was largely emboldened by the Scottish campaigning to separate from the UK earlier this year. Though Scotland eventually voted not to secede from Britain, many Catalans feel deprived of their right to express the voice on the same matter in their country. This has led to wide-spread support for the referendum of independence, as well as massive street demonstrations in Barcelona in mid-September and October.
