The Spanish Economy and Catalonian Independence

Story and photo by Madlen Gubernick | gubernick.ma@husky.neu.edu

The language is different and the culture is different, but Spanish economists say the fight for Catalan independence means much more than that. As the region in northeast Spain fights for secession from the rest of the country, experts warn that the economic implications of a split could be disastrous.

“Secession can be very, very, very messy,” said Georges Siotis, a former economist for the European Commission and an economics professor at Universidad Carlos III de Madrid. “Secessions are difficult to manage.”

Yet, many residents of the four-province region want to see the divide occur in their lifetime, no matter the cost. “We want to be independent,” said Josep Maria Aragay Barbany, an economics professor at the Universitat of Barcelona. “The No. 1 reason Spain doesn’t want Catalonia to be independent is because of the impacts on Spain’s economy.”

Catalonia was once independent, with its own language, culture and customs. However, in 1714, the War of Spanish Secession created what is now known as modern-day Spain, when Catalonia was colonized.

The fight for independence surged and quieted over the years, but reached a turning point after 1975 when Spain’s dictator, Francisco Franco, died and the country grew into a democracy. “As a country becomes more democratic, it is more likely for secession,” Siotis said.

The debate continues, but the stakes are high. Catalonia – which has the prosperous Barcelona as its unofficial capital – is the wealthiest region in Spain. If it were to become independent, it would instantly be the 34th largest economy in the world. According to a report published in October by the Catalonian regional government entitled The fiscal and financial viability of an independent Catalonia, in 2013 the region’s per capita gross domestic product was 23 percent above the average for Spain and 17 percent above the European Union average.

It’s that sort of financial stability that allows the people of Catalonia to realistically contemplate splitting from Spain. To prove that point, the Catalonian government held a non-binding referendum on Nov. 9 to determine how many Catalonians were in favor of secession. Of the 2.3 million people who voted – there are 7.5 million who live in the region – more than 80 percent said they wanted Catalan independence. Spanish Prime Minister Mariano Rajoy, however, declared the referendum unconstitutional. As a result, it had no impact, and prompted no action, from the Spanish parliament.

The reason, said Manuel Santos Redondo, director of the history and economy department at Complutense University in Madrid, is that most Spaniards understand what a split would do to all aspects of Spanish culture. “It’s a serious problem and it can’t happen. Even if it’s a decent process, it’s not going to help the economy. Political, social and cultural relations need to be improved first.”

Where both Madrid and Barcelona academics agree is in the identification of the key economic factors for both regions: the $1.3 trillion in national debt, and how that would be divided between the resulting two countries; the future of national companies with offices in both regions, and; whether Catalonia would join the European Union.

The solution is negotiation and policy. “Economic policy and institutional changes are key to the success of independence,” said Germà Bel, former Spanish congress member, and

Georges Siotis is an associate professor of economics at the Universidad Carlos III de Madrid. He has written many publications discussing international economics, as well as publications with an emphasis on Europe’s economy.

“The main issue here is whether the transition is negotiated and agreed by both parties or whether there is a unilateral declaration of independence,” said Raul Ramos of the European Forecasting Network, a group of research institutes that focuses on economic policy across the region.

Redondo, at Complutense University, put it more simply than that: “It’s going to be a disaster,” he said.

Economists agree that the first area for negotiation is the national debt Spain has acquired. According to an assessment published in 2014 by The Catalan Economics Commission, Catalonia is responsible for 27 percent of the national debt, or about $70 billion.

Ramos hypothesizes that, “part of the Spanish debt will be assumed by the Catalan State.” However, Barbany highlights the issue of national debt as one of the main reasons for secession. Barbany went on to say, “We need to negotiate a solution for the debt that doesn’t rely solely on Catalonia.”

Siotis, who called the issue of the national debt, “extremely tricky,” identified another topic for debate: pension plans. “How do you ensure these social contracts are maintained?” he said of the national social security system. “Pensions and savings are complicated because they are paid to the state per person.”

Barbany is equally worried
about the future of companies
that work both in the nation of
Spain as well as in areas of
Catalonia. “National markets will
be squished,” he said.
“European enterprises have
relationships with both regions,
but mainly in Catalonia.” If
secession occurs, he said, many of Catalonia’s business would likely persevere while many of Spain’s would stumble.

He especially noted that because Catalonia serves as a port to Spain from Europe, secession would make getting goods to Madrid and the rest of Spain much more difficult and costly.

It is for these reasons and others that many say they cannot sign on to what so many Catalonians want. “I just don’t see that it’s worth separating. It’s not worth the cost,” Siotis said. “I would understand if Catalan identity was still being oppressed, but I don’t think this is the case.”

But regardless of the economic implications, a number of economists in Catalonia still argue that the region should both continue to seek independence from Spain, and seek entry into the European Union as its own nation. Said Bel: “Catalans should enjoy the same rights and the same duties as the rest of Spain.”

 Written as part of Professor Hempel’s Journalism Dialogue to Spain