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Ainsley Duke

Phillips

AP English Language and Composition, 02

13 December 2017

Economic Effects of a Catalan Secession

Catalonia is a wealthy region of Spain situated on the Mediterranean in the northeast

corner of the country. A vibrant province with its own distinct culture and language, Catalonia

accounts for more than 20% of Spains economy, 25% of its exports, and 25% of its foreign

investment, despite only containing 16% of the nations population (Henley). Due to their

advanced economy, different language, and separate culture, the Catalan people have been

pushing for independence from Spain since the 19th century. However, regional elections and

referendums since 2015 show increasing Catalan support for separatist politicians and ideas.

Reflecting these views, separatist tensions culminated in October of this year when Catalonia

held an illegal referendum for independence, which terminated in a 90.9% vote for secession

(Stone). Due to differences in tax collection and debt allocation after a split, as well as political

consequences like boycotts of Catalan goods and rejection from European Union membership,

the economic ramifications of a Catalan secession would majorly impact both Spain and a new

Catalan state.

The diplomatic allocation of public debt is one issue Spain and Catalonia would face

upon separation. Along with its own minimal budget deficit, the new Catalan state would likely

need to absorb its own proportional share of Spains current national debt during separation

negotiations (Banal-Estonal et. al). However, the amount of debt Catalonia takes on during its

secession affects its future success as a sovereign nation. Sofia Bosch, a CNBC fiscal reporter,
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reports that although Catalonia is responsible for 16.34% of Spains national debt, there is no

foreseen amount that it would have to assume after the split. Catalonias future economic success

hinges on whether or not it could pay back its debt. If Catalonia must assume an amount of debt

that is larger than it could feasibly pay back, the future economic success of the new country

could be in jeopardy. The political compromises made during the possible split between

Catalonia and Spain could make variable, but certainly large, impacts on the future economies of

both states.

Political grudges are another issue that would face a new Catalan state in the conception

and preservation of its economy. About 35% of Catalonias exports go to other parts of Spain

(Bosch). In the past, other regions of Spain have boycotted Catalan goods during times of

political turmoil between the two. For example, an extremely popular Catalan wine called Cava

was boycotted across Spain in 2004 in response to communist, socialist, and separatist coalitions

forming in Catalonia (Banal-Estonal et. al). Catalan-Spanish history has shown that boycotts

occur when there is turmoil between the two regions. If more than one third of Catalonias

exports were blocked due to political boycotts from the rest of Spain, the region would

experience short-term economic harm.

In addition, Catalonia may not be able to rejoin the European Union (EU) as a sovereign

nation. Catalonia currently reaps many benefits from its EU membership under Spain. For

example, Spain uses the Euro as its currency, just like 19 other EU member states. Spain is also a

Schengen state, meaning that tourists, business people, and many others are able to travel

between the borders of Spain and other Schengen states as if they are travelling in one country

(Countries). This common currency and lack of borders within the EU give Catalonia many

different benefits, such as a boosted tourism industry. However, if Catalonia secedes, it will not
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be likely to join the EU as an independent nation. Due to official EU rules, there must be a

unanimous vote for admission of new countries by existing EU members (Countries).

However, Spain and many of its allies would likely block Catalonia from becoming a member

after its secession (Bosch). Catalonias occlusion from the EU would be detrimental to its

economy for several reasons. First, about 65% of Catalan exports go to member countries of the

EU. By no longer being involved in the unified economic system under the Euro, trading with

foreign countries becomes much more complicated (Martin). Additionally, travelling from

Catalonia to Schengen states would become more difficult as one would have to undergo

customs to enter or exit. By being blocked from many of its largest export markets through

political boycotts and exclusions, the new Catalan state would face economic hardship in its first

few years.

A substantial benefit of seceding for Catalonia, while simultaneously being a detriment to

Spain, involves the collection and distribution of tax money. Catalonia currently holds only 16%

of Spains population, but pays for 20% of its publically-garnered funds and only receives 14%

of that money back for its own public works . Consequently, 8% of Catalonias GDP is

transferred to the rest of Spain (Benavides). Catalonia would retain more money through taxes as

an independent state. According to two European professors of economics, Mireia Jofre-Bonet

and Albert Banal-Estonal, the new Catalan state would likely use the saved money to repair its

own infrastructure and create new Catalan national institutions. However, Spain would lose the

Catalan tax money, which is a large beneficiary of the national government and infrastructure.

In the case of a Catalan secession, both regions would experience initial economic

downcline. Due to protests, riots, illegal referendums, and police violence within Catalonia

surrounding the secession debate, the legal headquarters of nearly 3,000 businesses moved away
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from the region. In addition, the Spanish administration saw its projected economic growth for

the 2018 year drop from 2.8% to 2.3% (Euronews). These statistics portray the economic pains

of political turmoil. Additionally, one of Spains largest industries would take a serious hit in the

event of a split. Tourism has worked to pull Spain out of an economic recession over the last five

years and currently accounts for 14% of its GDP (Catalonian Crisis). Containing tourist

attractions like La Sagrada Familia, the Gothic Quarter, Mediterranean beaches, and mountain

ranges like the Montserrat, Catalonia is one of the most concentrated Spanish regions for tourism

(Catalonian Crisis). Since the beginning of this years political crisis in Catalonia, Spains

tourism industry dropped 4.7%, and if the crisis continues, both regions will be sure to see

declined tourism (Euronews). If combined with restricted ease of travel between countries in the

case of Catalonias rejection from the EU, this could seriously restrict travel and tourism within

Spain and Catalonia and thus hurt their economies.

On the other hand, Catalonia could experience economic success in the long-term. Its

location on the Mediterranean and its proximity to commercially vibrant countries like France

and Germany make Catalonia likely to succeed economically in the future. Hamish McRae, one

of the United Kingdoms most highly respected financial journalists, asserts that when countries

are located next to other or in areas of great commercial activity like the mediterranean, they are

apt to be pulled along by the economic success of these countries to experience prosperity of

their own. This is because these countries are likely to trade with each other and take part in

similar natural resources, and thus shave similarly prosperous economies.

Taken into consideration, the hypothetical outcomes of a Spanish-Catalan split certainly

forecast major economic changes. The political consequences of boycotts on Catalan goods and

blockage form the European Union would harm the Catalan economy. In the context of public
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taxation and spending, however, Catalonia would greatly benefit because more of the money it

makes from taxes would go back into its own economy. Although there are many probable

economic outcomes of a Catalan secession, there are no certainties. Until an actually secession

happens, no economist, professor, or public official can be sure of any denouement. Peter

Altmaier, the finance minister of Germany who is in favor of Catalonia remaining a part of

Spain, said a resolution to the crisis based on the constitution and the rule of law will help limit

the economic consequences. (Brunsden). On the other hand, the growing separatist movement

believes secession is the best thing for Catalonia culturally, politically, and economically (Fabre

et. al). Whatever political separations happen, the economies of Spain and Catalonia have

already been largely impacted. Within the uncertainty surrounding the Catalan crisis, the

economy will assuredly experience further change if Catalonia secedes, portraying the effect that

political turmoil can take on the economy.

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Works Cited

Banal-Estanol, Albert, and Mireia Jofre-Bonet. Catalonia, Spain and the Economic

Consequences of a Split. The Conversation, The Conversation US, Inc., 12 Dec. 2017,

theconversation.com/catalonia-spain-and-the-economic-consequences-of-a-split-85557.

Benavides, Lucia. The Big Reason Catalonia Wants to Secede May Be Economic: It's One of

the Richest Regions in Spain. Marketplace, Marketplace, 29 Sept. 2017,

www.marketplace.org/2017/09/29/economy/big-reason-catalonia-wants-secede-econom

ic-richest-regions-in-spain.

Bosch, Sofia. Heres How Bad Economically a Spain-Catalonia Split Could Really Be.CNBC,

CNBC, 2 Oct. 2017, www.cnbc.com/2017/09/21/heres-how-bad-economically-a-spa

in-catalonia-split-could-really-be.html.

Brundsen, Jim and Mehreen Kahn. Catalan Crisis Will Hit Spanish Economic Growth

Finance Minister.Financial Times, Financial Times Ltd., 6 Nov. 2017,

www.ft.com/conten

t/1103612f-0b81-39a3-b5e7-62d590105cb4.

The Catalonian Crisis: Impact on Spain's Air Transport, Tourism and Airports. CAPA -

Centre for Aviation, CAPA - Centre for Aviation, 26 Oct. 2017,

centreforaviation.com/insights/analysis/the-catalonian-crisis-impact-on-spains-air-

transport-tourism-and-airports-379431.

Countries - European Union - European Commission. European Union, European Union, 12

Dec. 2017, europa.eu/european-union/about-eu/countries_en#countrie_eu28.

Euronews. Spain Shrugs off Economic Impact of Catalan Crisis. Euronews, Euronews, 30

Nov. 2017, www.euronews.com/2017/11/30/spain-shrugs-off-economic

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-impact-of-catalan-crisis.

Faber, Sebastiaan, and Becquer Seguin. The Catalonia Cover Story. Nation, vol. 305, no. 10,

23 Oct. 2017. NC Wise Owl.

Henley, Jon. How Important Is Catalonia to Spain? The Guardian, Guardian News and Media,

2 Oct. 2017, www.theguardian.com/world/2017/oct/02/catalonia-important-s

pain-economy-greater-role-size.

Martin, Will. A Catalan Split from Spain Could Be Even Worse than Brexit. Business Insider,

Business Insider, 2 Oct. 2017, www.businessinsider.com/catalonia-split-spain-

economic-impact-ing-2017-9?r=UK&IR=T.

McRae, Hamish. Catalonia Could Be an Extremely Successful Economy and EU Member

State. The Independent, Independent Digital News and Media, 28 Oct. 2017,

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-location-trade-currency-a8025051.html.

Stone, Jon. Catalonia's Independence: How Did It Happen? A Timeline of Key Events. The

Independent, Independent Digital News and Media, 27 Oct. 2017, www.independent.

co.uk/news/world/europe/catalonia-independence-what-happened-spain-timeline-events-

referendum-latest-a8023711.html.