economics

Catalonia Ponders Independence

Published October 12, 2017 by Carl De Luna
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News of Catalonia’s potential departure from Spain has spread like wildfire. Various news outlets throughout the world have reported the fascinating developments in Spain and in Catalonia. Murmurs and grumblings of Catalonia breaking free from Spain have been aired for a long time now.

Catalonia is an autonomous region of Spain. Its capital, Barcelona, is one of Spain’s key cities, and to many Barcelona is more than a city. With its 32,108 square kilometers size, Catalonia represents a significant chunk of Spain and an important economic region. It has a population of 7.523 million as of 2016, a big chunk of Spain’s estimated 46.37 million. Catalonia is among Spain’s 17 autonomous regions and is home to Antoni Gaudi’s famous work Sagrada Familia Basilica and to the world-famous football club FC Barcelona.

The recent referendum in Catalonia was a success for its organizers. Out of the 2,286,217 who came out to vote on the referendum, 2,044,03 or 90% backed Catalonian government’s plan to leave Spain. However, the turnout was only 43% of eligible voters. This was partly due to the Spanish government’s efforts to prevent voters from going out to vote and to stop the vote from taking place. They ruled that the referendum was illegal. To dissuade voters, their efforts included police officers using rubber bullets and force which injured voters. They have since apologized to injured Catalans. But the Spanish government was widely criticized for cracking down on peaceful activities.

But is Catalonia ready to be its own nation? We have to consider their institutions and symbols. They have their own flag and own parliament with Carles Puigdemont as their leader. Public services such as healthcare and schools are delivered by Catalonia. Catalonia even has its own police with the Mossos d’Esquadra and its own broadcast regulator, the Consell Audiovisual de Catalunya. They also have their own foreign trade and investment offices which promote foreign trade and investment in Catalonia.

Despite all of this, Spain controls much more and Catalonia depends on them. These institutions include air traffic control, border control, customs, central bank, inland revenue, national defense and international relations. In any separation event, Catalonia must build these institutions from scratch and for sure there will be birthing pains.

Perhaps, the most damning reason that Catalans chose to separate is the popular secessionist slogan “Madrid nos roba” or Madrid is robbing us. The Catalans have a fair point in this one. Spanish government figures in 2014 showed that Catalans paid €10 billion (£8.9 billion or $11.84 billion) more than in taxes than was spent in the region. It is a region of wealth when compared to other regions of Spain. Catalonia contributes 19% of Spain’s gross domestic product while in terms of foreign exports, they contribute more than a quarter or 25.6% of Spain’s total.

Spain also benefits from 18 million tourists visiting Catalonia as their primary destination, which is 24% of the 75 million tourists visiting Spain. Its capital Barcelona ranks in the European Union’s top 20 ports by weight of goods handled. One of Catalonia’s provinces, Tarragona, is among Europe’s largest chemical hubs. Their working population is also well-educated with a third of the Catalan population having some sort of tertiary education. Catalonia also contributes 20.7% of Spain’s foreign investment

Spain needs Catalonia. It is perfectly clear. But the divide between Madrid and Barcelona has grown in recent times. Spanish Prime Minister Mariano Rajoy’s actions such as heavy-handed police intervention has expressed alarm not only with Catalan nationalists but also with Basque nationalists. The tense political and social situation in Catalonia has affected businesses, with many choosing to relocate their headquarters away from Catalonia. Catalan bank Sabadell shifted its legal headquarters away from Catalonia as did regional lender CaixaBank, which moved its headquarters from Barcelona to Valencia. Banca Mediolanum, an Italian asset manager, replicated Sabadell’s move by moving from Barcelona to Valencia. Stoppages in production were held at Volkswagen’s seat plant in Catalonia as well as at Nestle’s instant coffee plant in Girona. The situation has alarmed Cercle d’Economia, a Catalan business lobby, as they are wary about the potential Catalonia independence.

The situation is yet to stabilize as Rajoy has given the Catalan government eight days to drop their independence bid or failure to do so will result to Rajoy suspending Catalonia’ political autonomy and ruling the region directly. But it would be best for both parties to calm down and settle the situation with cooler heads. This would likely result in better decisions being made. However, if Catalonia is given the opportunity to leave Spain, they should be given ample time and help to proceed with establishing the necessary institutions to become a full-fledged nation. They could also seek greater autonomy to run things as it could deter their desire to separate from Spain in the short-term.

Businesses must be careful on their decision whether to move their legal headquarters away from Catalonia. It is right to feel out the sentiment and the environment first before making this important decision to avoid repercussions from disappointed Catalans. It is the same case for companies with factories in Catalonia such as Nestle and Volkswagen. It is much better to stay put now since their equipment, parts and materials would be hard to move immediately. While for banks, their decision to move away from Catalonia is understandable since it would ensure that they would remain within the Eurozone and under the supervision of the European Central Bank.

The case of Catalonia is a difficult one since it encompasses many aspects of Spanish life. As Spain’s richest region, it is important for Spain to keep Catalonia under their control. However, an important question to be resolved is Catalonia’s public debt. It owes €77 billion (£68 billion or $91.13 billion), €52 billion ($61.54 billion) of which is owed to Spain. Their total debt is 35.4% of Catalan GDP. Would Catalonia be willing to pay their debt if they leave Spain? How would they get the money to pay the debt? Catalonia has also been benefiting from a special fund created by the Spanish government in 2012 to provide cash to regions who were unable to borrow money internationally due to the financial crisis. It raked in €67 billion ($79.30 billion) from the scheme. Its economic future will also be in doubt since Spain is a member of the European Union. First would be their currency, Catalan independence would mean that they would drop out of the euro automatically and thus, no access to the European Central Bank. To regain access, they must reapply and it wouldn’t be easy. Some of the criteria include debt levels which are not a large percentage of their GDP and even if it passes that, it will have to gain the approval of the qualified majority of Eurozone countries.

The future of Catalonia and Spain is on the line. It is not only politically, socially relevant but also economically. Catalan nationalist leaders must think twice before leaving Spain as it could mire them in deeper troubles. They could use the referendum results as a demand to receive better treatment from the Spanish government such as better returns for their enormous taxes. It can be done without much fuss and hopefully the trouble brewing in Catalonia would be resolved in the soonest time. The leaders of the Separation movement also have to consider the people it represents. Those who voted for their own nation will feel betrayed if their leaders do not pursue the mandate they gave them. But then again, we only have to look to Greece to see that in Europe, a vote from the people does not always translate into actions from their leaders.

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