Both Scotland and Catalonia entered into a union with a larger neighbour more than 300 years ago and are now wrestling with the benefits of their respective unions.
This ties into a broader debate stirring across Europe as to what membership of the European Union (EU) means. As investors in European equities we have a keen interest in the long-term, equitable growth of the region as a whole, but also its individual states and regions.
So far, the Catalans and Scots have decided not to go it alone, but the important factor for us is the democratic manner in which these issues are being worked through. We were encouraged by the lack of disruption to company operations or investments through this process.
We think economic pragmatism remains the key driver for the union in Spain as the electorate, whether in Barcelona or Madrid, recognises that the economy is turning a corner.
Unemployment has fallen by one million since peaking at more than six million in 2013, consumer sentiment is improving, real estate recovering and debt, while high, is moving in the right direction. This has been reflected by the S&P revising up its rating on Spain’s sovereign debt, from BBB to BBB+ at the start of October.
We were pleased to find that those headline recovery stories are being felt on the ground. In particular, key hotel groups NH Hotel and Melia are seeing both travellers return to Spanish cities, a key sign that business is being done in Spain, and holiday makers return to resorts, a key sign that business is booming elsewhere in Europe.
It is not all plain sailing for the Spanish Government after the European Commission’s (EC) critical assessment of the draft 2016 Budget, which highlighted the risk of missing EU fiscal targets. In light of this assessment, the EC has stated that it will request amendments to the 2016 Budget once a new government is in place next year.
