As you know, the northeast region of the Iberian peninsula Catalonia (Catalunya) will hold crucial elections this Sunday between independent parties demanding the independence or the rest of forces struggling to maintain the unity of Catalonia in Spain.

Catalonia's president, Artur Mas, and leader of the opposition (in this case his allied) Oriol Junqueras proclaimed autonomic elections to be a plebiscite on independence. Both Catalan right and left plus civil society and key people of the Catalan culture joined forces in a single electoral list called Junts pel Si (Together for Yes) to battle up for the independence.

Mas is the current president of the Generalitat of Catalonia and leader of the right Democratic Convergence of Catalonia; while Oriol Junqueras is the leader of the second force, the Republican Left of Catalonia. The third party in this crusade is the radical left-wing CUP. They are not in the common list, but they could obtain its best result in its history.

On the other hand, there are the biggest parties in the Kingdom of Spain: The Popular Party (PP), the Spanish Socialist Workers' Party (PSOE), Citizens – Party of the Citizenry and the regional version of Podemos: Catalonia Yes we Can. In addition, former CDC partner, the regional Democratic Union of Catalonia DUC.

The PSOE is attempting to promote a third way that will push a more federal style government in Spain with more self-government in the regions. The PP stands up for the status quo: nothing has to change. While new parties such as Podemos and Citizens emerged as new political forces from burned voters.

Catalonia Elections: Too close to Call

The independent move in Catalonia is mostly popular, by the people and from the people. One can say that people are influenced for years of pro-Catalonia indoctrination in schools; but certainly, the movement for the independence has been raising in the last years following the extremism and lack of affection in the relations between Spain and Catalonia.

The biggest party CiU joined this movement a few years ago and it meant a split and now CDC is alone with no DUC. No one knows for sure the votes CDC lost with the split from DUC.

According to the latest poll from El País and La Vanguardia newspapers, independent parties would gain majority with around 70-75 seats out of 135. So, they would start an 18-month process that would lead to the independence from Spain.

The critical elections in Catalonia could result in an outright majority for secession from Spain, which the pro-independence aim to achieve within 18 months. According to Yohay Elam from Forexcrunch, "the intention to proceed with a unilateral declaration of independence has already ruffled some feathers not only in Spanish politics but also among the business community and from leaders in the European Union that clearly oppose any changes in the already shaky EU."

"The talk about possible bank freezes and bank runs echo similar events in Greece, and not by chance. Other European countries would not like to see any sort of discontent, whether against austerity or against the sovereignty of the fourth largest economy in euro-zone," adds Elam.

Inside the Spaniard frontiers, many central politicians have made statements against the independence and some talks about 'corralito,' or the loss of the European citizenship have hit the wires. On the other hand, many Catalan politicians have counterattacks with numbers, opinion and wishes, but are they true?

Truths and lies about the independence of Catalonia

1. Will Catalonia retain its status as country of the European Union?

Yes and not. There are reasons to believe that Spain and the European Union will push Catalonia outside the union, and they have the treaties to be interpreted; however, it is also truth that there is not a specific regulation about that. How to expel a part of your region? Greenland left the Union in 1985 after they seceded from Denmark, but it was after holding a referendum to decide to leave the European Economic Community.

Other example on a state changing frontiers was Germany in 1990 with the quick unification of East Germany. Yohay Elam pointed out in a recent column that "while the number of member states will not change, a departure of Catalonia from the euro-zone is more significant than a Grexit."

2. Will other countries recognize Catalonia as a state?

Probably no, at least in the beginning. Money matters and despite Catalonia is not Greece, Spain is not Uganda. As Spain is bigger and stronger than Catalonia, they will push other countries to do not recognize Catalonia as a state. However, it could happen with the pass of the time, or perhaps the decision of a big country to give Catalonia its statehood will encourage other countries to do the same.

3. Will Catalans keep its condition as Spanish, and European, citizens?

No matter what Spain's politicians have threatened, Catalans will keep their Spanish citizenship. It can seem incongruous that Catalans want to keep their Spanish citizenship, but they want it. Obviously, Spain can change its constitution, but they aren't recognized by their ability to change the constitution. In this case, the European Union will sanction against this rule. In the improbable case they lose its Spaniard condition, they would keep the European citizenship.

4. Will the Catalan banks pushed to close and to be in 'Corralito'?

It was a regrettable chat from the Governor of the Banco de España Luis Linde. It caused a 3% drop in stocks in Spain and fueled the losses caused for the Volkswagen scandal in Europe. Linde quickly rectified himself and said it was 'highly improbable.

5. Will Catalans lose their pensions?

Let's be clear here. If the Spanish Government decides not to pay pensions to the people who previously have paid for it, it would be a robbery. I strongly doubt that the European Union would allow Spain to do that. The real question here is about the ability of Catalonia to create a new system and to deal with Spain about the money they owe to Catalan people.

6. Will Catalonia has access to the debt market?

Catalan politicians believe they will have kind of safe haven bond in the short term, but it won't happen any time soon. Ratings Agencies will need to check how Catalonia deals with Spain and the rest of the European Union before saying anything solid. Recently, Fitch Ratings affirmed city of Barcelona at BBB+ with a Stable outlook. Moody's maintained unchanged its rating over Catalonia at Ba2 with Positive outlook. Moody's considers the independence of Catalonia as highly improbable. So, Catalonia will have high borrowing costs.

7. Frontiers for products and new customs duties?

It's simple. If Catalonia remains in the union, no. But in the case they are forced to leave the union, you can count with new customs duties for sure. It will make Catalan product more expensive in the European Union and also in other countries with trade agreements with the European Union, but they will not longer able to join it.

Cataleave? How the outcome in Catalonia could affect the Euro?

Long story short, Catalonia is facing a tipping point in its story. Many people are taking their decision as it is the opportunity they have been waiting for, others because they want to explore a new situation, others because perhaps it won't be another chance, others because they are afraid of the future if it is different.

Adam Button from ForexLive recently pointed out that “it's easy for people to vote for a separatist party when nothing is on the line. Like in Scotland, when the chips are on the table, voters get scared."

However, analysts at Rabobank say that "whatever the election result, the odds are stacked against there being a declaration of independence in the foreseeable future."

Yohay Elam from Forexcrunch says that "in case the pro-independence Junts per Si party wins an absolute majority or needs the support of the radical left CUP party in order to proceed towards secession, this will certainly serve as an escalation, especially in the second case."

"The negative effect for the euro-zone could actually result in a stronger euro on safe haven flows, as we've seen in the case of the Chinese stock market crash in August and at the peak of the recent Greek crisis in July," comments Elam.

On the other hand, Valeria Bednarik from FXStreet says that "the local election has little chances of affecting the market, as investors have already enough to worry about on things going on today, named Chinese slowdown or the never coming rate hike this 2015. In fact, if last week elections in Greece failed to affect the EUR, even less can be expected from this one."

In case these parties don't reach a majority, Elam expects no reaction "as the topic returns to be an internal Spanish one. Yet like with Greece, without a clear resolution, the extend and pretend policy means the next crisis is just around the corner."

It will also depend on the willingness of Spain to accept the decision of the Catalan people, Spaniards are in a dilemma, if they accept the Catalan decision they will lose Catalonia; but if they don’t accept the Catalonia wish, and also they hinders Catalonia’s moves, they will prove that Catalan’s complains about their intransigence and lack of respect of Catalonia are true.

Whatever the outcome will be, the story will be different from Sunday onwards.

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