Catalan enthusiasm for independence shows no sign of flagging.

Photographer: Pau Barrena/Bloomberg

Bondholders Vote on Catalan Independence

Mark Gilbert is a Bloomberg View columnist and writes editorials on economics, finance and politics. He was London bureau chief for Bloomberg News and is the author of “Complicit: How Greed and Collusion Made the Credit Crisis Unstoppable.”
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Now that 81 percent of Catalonian voters have expressed their preference for  independence from Spain, the Spanish government's refusal to negotiate with the separatist movement has become unsustainable -- and risks driving even more people into the independence movement.

It's true that yesterday's vote was probably skewed -- in part, it was a protest against the Spanish courts' ruling that the vote was illegal. Yet opinion polls have consistently shown Catalans in favor of going it alone. And falling prices in the bond market suggest investors are increasingly convinced that Catalan President Artur Mas stands a good chance of winning his campaign for autonomy.

Catalonia

Bonds issued by Catalonia have been losing value ever since Scotland's failed bid for independence from the U.K. reminded the world about secessionism:

Catalonia currently owes bondholders about 10.7 billion euros ($13.25 billion), split across 38 securities, according to Bloomberg data. The prospect of independence makes investors skittish, because Catalonia would take on a chunk of Spain's 1 trillion euros of public debt.

The region's indebtedness may surge by 90 billion euros if the region achieves sovereignty and takes on a share of the Spanish government's debt commensurate with public spending, according to Oriol Junqueras, who leads the separatist group Esquerra Republicana. The jump could be as much as 210 billion euros if it is based on how much revenue Catalonia generates, he told Bloomberg News last week.

So as well as dropping in price, Catalonia's bonds have lost ground against Spanish government debt -- a change that's illustrated by a jump in the additional yield investors demand to lend to the region rather than the government:

Last week, Junqueras had a message for bond investors contemplating the implications of independence: "It would be good for the markets to talk to Catalan society about this as soon as possible." In other words, you may be a creditor of the Spanish government today, but if the separatists get their way, you will end up as a creditor of Catalonia tomorrow.

The investment community was slow to acknowledge Scotland's drift toward independence; fund managers need to avoid being caught napping a second time in Spain. Conversations between money managers and Catalan officials to ensure that funding remains in place for a new government would be welcome. It would be even better if the Spanish government started a meaningful dialogue with the breakaway movement to avert that outcome. 

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Mark Gilbert at magilbert@bloomberg.net

To contact the editor responsible for this story:
Mary Duenwald at mduenwald@bloomberg.net