* Referendum on independence seen delayed after election
* Catalonia will struggle to renegotiate fiscal position
* Region still reliant on funds from central government
* Independence fervour to continue as background noise
By Nigel Davies
MADRID, Nov 26 The secessionist drive in
Catalonia is a political headache for Spanish Prime Minister
Mariano Rajoy but it is unlikely to derail his austerity
measures as the central government's cash lifeline for the
region will force it to comply.
While Catalan parties that back a referendum for
independence control two thirds of the region's parliament after
Sunday's elections, the ruling Convergence and Union party, or
CiU, lost ground and will depend on deals with other parties to
pass budgets and legislation.
CiU leader Artur Mas had called early elections and
campaigned on a pledge to push for a referendum on independence
from Spain. He wants to negotiate a new system for sharing tax
revenues nationally because he says current rules drain
Catalonia of funds it could invest in its own economy.
The second biggest party in the Catalan parliament, the
separatist Republican Left, or ERC, could try to block Mas's
plans for spending cuts to tackle a large deficit. But that will
be difficult because Rajoy's government has bailed out Catalonia
twice this year.
First, the region received billions of euros in credit to
get up-to-date on arrears in wages and payments to suppliers.
Then Mas asked Rajoy's government for a 5 billion euros ($6.48
billion) bailout to meet debt payments.
"Catalonia is taking money from the central government, and
while that continues to be the case the margin for a complete
renegotiation of its fiscal position is small," said Silvio
Peruzzo at Nomura.
Catalonia, a major exporter, accounts for a fifth of Spain's
economy. But it is the most indebted of Spain's 17 regions and
is shut out of capital markets.
It was also the first to begin austerity measures to try and
regain access to funding, and hopes to gain more control over
its finances from Madrid.
Peruzzo said independence fervour was unlikely to disappear
completely, but the failure of Mas' CiU party to gain an
absolute majority would slow things down and postpone any calls
for a referendum on independence.
Negotiations over a possible coalition government in
Catalonia will provide some concern in coming weeks even if
analysts do not see the CiU's austerity policies veering wildly
Full independence in any case would take years, and the
region might not be included in the European Union if it did
become a separate state.
That would be unthinkable for Catalonia, Catalans, and their
businesses. While a majority have backed independence at polls,
the number drops sharply if that meant the region falling out of
Some expected the separatist debate to take second place to
concerns about Spain's finances and when it would need to apply
for an international bailout.
"For financial markets the result is not that bad as the
question of independence will soon be off the table and the
focus will be once again on fiscal consolidation measures and
whether Spain will request a bailout," said Philippe Gudin,
economist at Barclays.
On Monday Spain's Ibex index of leading shares was down
around 0.7 percent, in line with losses on other European
bourses, while the country's key 10-year debt yields were around
5.6 percent, little changed from Friday's levels.
BAILOUT CONCERNS KEY
Spain has delayed requesting a bailout after the
announcement alone of a backstop for struggling euro zone
states' debt by the European Central Bank helped to bring debt
costs sharply down.
But they still remain at high levels. With potentially
around 250 billion euros to raise next year in financing,
including funds for the regions, analysts say a request for help
from Spain is a matter of time. Gudin at Barclays said it could
come before the end of the year.
A market maker for Spanish debt also dismissed concern over
Catalonia, and did not think it would have an impact on the
international investors who have begun to tentatively invest in
the country's bonds again.
"The Catalan elections are gone and I don't see
international investors looking at this any more. Spain's
financing needs for next year are the big thing to look at, and
heading into 2013 if a bailout comes as is expected," he said.
Catalonia faces debt redemptions next year of around 6
billion euros, meaning it will likely turn to the central
government again to help cover its financing needs.