Spain’s Basque Elections Help Rajoy, Catalan Votes on Nov 25th

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Spain’s regional elections on Sunday saw PM Rajoy’s People’s Party win in Galicia, reinforcing support for the austerity policies put in place by the national government. Galicia is also Rajoy’s home region, with rumours that he was waiting
until after the election there to ask for a bailout. If true, Spain could ask for a bailout within the next few weeks. There were also elections in Basque Country, where the Basque National Party won with a minority 27 of 75 seats. It will form a coalition with other separatist lawmakers and no doubt ratchet up pressure on the central government to give the region more autonomy. The next regional election is in Catalan on November 25, with the current President, Artur Mas, pledging to hold a referendum on independence if he’s re-elected.

The results in the Basque Country, with the parties against secession dropping sharply (the socialists also reduced their sits, from 25 to 16) are likely to be a source of headlines about secession going forward, particularly if there is a wide pro-secession result in Catalonia. Many observers do not believe this is a real threat in the short run given that the last PNV government tried (very modestly) this route and failed.

The election in Catalonia (November 25) is one of the next milestones ahead for the Spanish government. This is an election about one topic, secession. And the argument being brought forward by secessionist is that Catalonia needs to pass so much austerity measures today because the Spanish government takes too many resources away from Catalonia. This again generates political resistance for the Spanish Government to ask for help (since it would likely come with new austerity) ahead of elections.

According to José Mª Valle of Ahorro Corporación Group, Spain’s risk premium has fallen to 373bp vs. 628bp at the end of July, after being positively impacted by ECB’s announcement of its purchase programme, and more recently, Moody’s decision to maintain Spain’s debt rating at the investment grade level, which could generate a more favourable environment for Treasury bond auctions. In addition, expectations have heightened regarding a possible preventative credit line for Spain, which would allow the activation of debt purchases by the ECB, and could facilitate Treasury placements in the primary market. The Treasury’s gross financing needs for what remains of the year amounts to €45,363Mn (including €23,000Mn in bills), which represents 22.6% of the annual objective. The 3M rates are at about 1.45%, higher than the average interest rate of 1.20% at the last auction, the 25 September, which had a bid-to-coverage ratio of 3.29x, and 6M rates are at about 1.99%, below the average interest rate of 2.21% in the last auction, which had a bid-to-coverage ratio of 1.83x.

Poll of the active population 3Q12 (26-Oct). The INE published the EPA, the main indicator for the Spanish labour market. The unemployment rate could increase from 24.63% to 2Q12 to 24.9% in 3Q12 (the average unemployment rate in 2011 was 21.6%).


Another crucial event to keep an eye on, is the end of the ban on short sales (23-Oct). It was implemented 23 July, for a period of three months.

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