Why the Catalonia Election Results Should Worry Markets


David Ramos


"This election result hasn't made things easier. What we've seen is a radicalization of the political stage," Edward Hugh, one of the few economists to sound the alarm about the euro zone's debt crisis, told CNBC.

(Read More: Catalan Election Results)

The region, which includes Barcelona, Spain's second-largest city, pays more into Spain's central coffers than it gets back, and is historically independent-minded, with its own dialect. As talk of a bailout for Spain continues, the wish to dissociate from the rest of the country may grow.

"We feel as the Northerners of the South," Jordi Molins, a Catalan and previously a trader at Dresdner Bank, told CNBC.



(Read More: Why Catalonia Won't Become Independent)


David Ramos

"The focus will probably shift to economic and financial issues, in particular, the need to find a new compromise on the financing of the regions and on increasing the economic efficiency of the "Estado de las Autonomias," according to Philippe Gudin, chief European economist at Barclays.


(Read More: Spain Under Major Shadow)

Hugh warned of the potential for a "train crash" next year if Prime Minister Mariano Rajoy, whose Popular Party (PP) won its biggest ever share of the vote in Catalonia, doesn't take notice of the shift to more extreme parties, and argued that investors are underestimating the importance of the result.

"If there's not flexibility on the budget next year, we're going to have more separatist demonstrations and more demands for a vote," Hugh said. "We could move to a second election towards the end of next year, which would have only one topic – whether to create a new state or not. Somebody needs to do something to defuse this situation and find an orderly solution."

Written by Catherine Boyle, CNBC. Twitter: @cboylecnbc.