“Spain wasn’t supposed to be on the list of political risks” this year, says Richard Barley in The Wall Street Journal. But investors bedazzled by Europe’s recovery and the apparent retreat of populist forces have had “an ugly reminder of Europe’s complexities”.
Madrid’s heavy-handed clampdown on Catalonia’s independence referendum last Sunday, which the central government had declared illegal, saw police firing rubber bullets at voters. The vote in favour was 90%, on turnout of just 42%.
The plebiscite “could have big consequences”, says Neil Unmack on Breakingviews. If Catalonia keeps pushing for independence, we could see a “bitter secession” depriving Spain of a prosperous region comprising a fifth of its GDP and threatening upheaval across the economy. But the most likely outcome is Catalonia pushing harder for fiscal autonomy, and obtaining it in a compromise with Madrid.
Markets’ relatively calm reaction suggests that investors have pencilled in this scenario. But this has the potential to become a protracted and damaging affair. Madrid’s brutal response “will surely have achieved nothing except to bolster the case for separation”, says City AM. Secession wouldn’t just be a political headache for the EU as a whole, it would also plunge Madrid back into a debt crisis.
If Catalonia left, Spain’s debt-to-GDP ratio would jump from 99% to 116%, reckons Douglas McWilliams of the Centre for Economics and Business Research. With Catalonia running a surplus, Madrid’s annual overspend would rise to 7.8% from 4.5%. And all this, says McWilliams, presupposes a peaceful split, no measures by the central government to punish Catalonia, and “no contagion effects on other regions in Spain or elsewhere”.
The “elsewhere” is key here, as Catalonia is hardly the only region agitating to leave a bigger unit. The Basques in northern Spain, Belgium’s Flanders, France’s Corsica and regions in northern Italy all have movements demanding autonomy or independence. The bloody Spanish vote implies that “other separatist movements will find a new moral impetus”, says Bruno Waterfield in The Times.
This week the Italian regions of Lombardy and Veneto announced referendums on greater autonomy. For now, this imbroglio is merely likely to temper Spain’s GDP growth of 3%. But in the longer term, as Waterfield says, separatism “threatens the European order”.
China will fuel gas prices
Over the past few years US natural-gas prices have moved sideways, with shale-gas supplies helping keep a lid on prices. But the long-term outlook is bullish. Concern over climate change and pollution suggests that demand for gas, the cleanest-burning fossil fuel – it produces about half as much carbon as coal – should climb.
Green regulations in China are especially likely to become more stringent.China burns half the world’s coal supply, says Nathaniel Taplin in The Wall Street Journal. But “it would like to be a gas giant instead”, not least because politicians “are getting increasingly nervous about middle-class discontent with air pollution”.
Prices of liquified natural gas in Asia have now slipped to multi-year lows, while coal prices are high, increasing the incentive to switch. Gas will also ensure that China’s “army of wind and solar plants” is used more efficiently.
Gas turbines can be turned on faster than coal, so they will be easier to use as a substitute when the wind isn’t blowing or the sun isn’t shining. Gas still only comprises 4% of China’s power, but it is on the rise – as prices will be before too long.