The vote in Catalonia casts a dark shadow over Spain.

29-09-2015GUSTAU NACARINO

One of the hardest-hit economies in Europe from the global financial crisis, Spain’s recent economic success sets a good precedent for the euro zone’s potential for recovery. But political machinations on the horizon could put the progress it has made at risk. Sunday's vote in Catalonia gave a majority of the 135 seats to secessionist parties. But it did so with just 47.8 per cent of the vote on a record turnout of 78 per cent. Secessionists claimed the result is a mandate to leave; the national government in Madrid, as well as financial markets, do not agree.

Economists have repeatedly warned that an exit from Spain would negatively impact both Catalonia, one of Spain’s wealthiest regions that makes up about one-fifth of GDP, and the rest of the country.

Now is a particularly bad time to worry about it, not just for Spain but for the wider euro zone where the European Central Bank is trying to rekindle moribund inflation through zero interest rates and 60 billions worth of mainly government bond purchases a month. Already there was speculation that the programme would need to be expanded. ECB President Mario Draghi can use all the good economic news he can get.

“Spain’s long-term success depends on maintaining both economic and political equilibrium,” wrote Mark Wall, chief European economist at Deutsche Bank. “Political risk will eventually weigh on investment and durable consumption in the second part of the year.” That stability faced its first threat this weekend and could be shaken again when the country goes to national polls at the end of the year.

In March-June, Spain’s economy, the fourth largest in the euro zone, grew by 1 per cent, handily outstripping its neighbours. It is forecast to be the fastest growing economy in the euro zone in 2015.

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