Some concessions towards Catalonia likely from Spain's central government

After Spain's 20 December general elections, the new central government in Madrid will in all likelihood start negotiations to reform the balance of powers among Spain's regions, probably involving constitutional reform. 

"Some concessions towards Catalonia are likely, a reform of the redistribution of the fiscal balances and further devolution of powers, possibly even greater fiscal responsibilities", says Barclays. 

These reforms can be achieved with a three-fifths majority in the upper and lower chambers.

Markets have not perceived the risk of independence as very likely, at least there was no material sign of systemic concern ahead of this weekend elections. As the results have been largely as expected, a very negative market reaction is not expected to the election results.

"However, the fact that over the past couple of months markets have demanded a wider credit spread to hold Spanish bonds than Italian ones, despite the stronger macroeconomic performance of Spain, provides some evidence of the political concerns that markets attach to Spain, both at the regional level (pro-independence support in Catalonia) and at the general level (with radical-left Podemos polling third after PP and PSOE)", says Barclays.