International Finance
Wealth Management

Chaos in Catalonia is a wake-up call for global investors

The Catalonia independence crisis could put the brakes on Spain’s recent economic progress

The chaos in Catalonia in Spain is a wake-up call for global investors. In a highly anticipated speech, the president of the Catalan government, Carles Puigdemont, said Catalans had ‘won their right to become an independent country’ from Spain following the disputed referendum on October 1. He added that he will first seek to open a dialogue with Madrid.

The aftermath of geopolitical events of this magnitude have the potential to influence capital markets which, of course, drive investor returns.

Up until now, the chaos in Catalonia had been largely dismissed by global investors as a regional issue. However, now that Puigdemont is effectively saying that Catalonia will become independent come what may, a considerably heightened game of cat and mouse between Barcelona and Madrid has been started – and this could have far-reaching economic consequences in the short and longer term.

In the short term, there will be ongoing and increasing uncertainty, which is likely to create turbulence in the domestic and regional financial markets. In the longer term, if Catalonia splits, Spain’s economy – Europe’s fourth largest – could lose 20 per cent of its revenue. Plus, the process could adversely affect investment into both Spain and Catalonia.

The Catalonia independence crisis could push Spain’s recent economic progress back. This would inevitably weaken the wider Eurozone’s economic stability by pushing the bloc into another era of grinding uncertainty.

This is perhaps especially concerning as we have recently had the German election, with Merkel returning but with a lower majority, and now we have the Austrian election, and the Italian one next year. And this is all against a backdrop of British PM Theresa May being urged to walk away from Brexit negotiations in Brussels if they fail to make progress this month.

Nigel Green is founder and CEO of deVere Group

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