Catalonia grows in distance from Spain

Secessionists win a two-thirds majority in the local parliament as economic hardship increases calls for a break from Madrid

PUBLISHED : Tuesday, 27 November, 2012, 12:00am
UPDATED : Tuesday, 27 November, 2012, 5:56am


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Catalonia's leader Artur Mas says the powerful region's economy can stand tall in Europe without Spain. But could Spain survive without Catalonia?

The prospect of an independent Catalonia of 7.5 million people lying to the northeast of Spain seems distant, with Prime Minister Mariano Rajoy's government vowing to block any referendum.

In a snap election on Sunday, voters slashed the majority held by Mas' conservative alliance, Convergence and Union, but boosted support for left-wing pro-independence forces.

Voters handed almost two-thirds of the 135-seat local parliament to four different separatist parties that all want to hold a referendum on secession from Spain. Despite having its wings clipped, Mas' alliance promised to seek a popular consultation on self-determination.

The question of statehood overwhelmed any debate of the Catalan economy and its more than €40-billion (HK$395 billion) debt, but it also highlighted Catalonia's importance to the rest of Spain.

"We could get along quite well," Mas said on public television two days ahead of the election, defying some analysts' forecasts of an economic catastrophe if Catalonia splits from Spain.

As a separate nation, Catalonia would rank seventh in the 27-member European Union in terms of wealth creation and ninth in terms of its trade capacity, the Catalan chief said.

But for the rest of Spain, already sunk in recession, its banks in crisis and one in four workers unemployed, analysts warn the outlook could be even grimmer without Catalonia.

Independence for Catalonia is a "very unlikely outcome", said Raj Badiani, London-based analyst at IHS Global Insight, a research group. But if it did occur, the first impact would be a loss of tax receipts, he said.

Indeed, many Catalans complain Madrid collects far more in taxes from the region than it returns. It estimates the "fiscal deficit" at €16 billion euros a year, a figure Madrid disputes.

"There would obviously be a net impact on the rest of Spain's tax receipts," Badiani said. "Given that it is already facing the likelihood of missed fiscal targets both this year and next, and tax receipts are already being squeezed by a recession that is exhibiting depression-like qualities, that would be a fatal blow."

But the loss of Catalonia, which accounts for one-fifth of Spain's total economic output and more than one-quarter of its exports, would also hurt the broader economy, he said.

"If Catalonia was suddenly to disappear I think you would be talking about a deeper and far more prolonged recession in the rest of Spain," Badiani said.

Xavier Cuadras Morato, an economist at Barcelona's Universitat Pompeu Fabra, agreed that a divorce between Catalonia and Spain would hit the Madrid taxman in the pocket.

"If the Spanish economy already needs to make adjustments, those adjustments especially in the public sector would be somewhat more serious, somewhat larger," Morato said.

In any divorce agreement, Spain would likely insist that Catalonia pick up a share of Spain's €685 billion sovereign debt, said a report by think tank Instituto de Estudios Economics. It estimated the Catalan share at €128 billion.

Spain would suffer, too, from the loss of Catalan exports.

"It would be difficult because they would lose 30 per cent of their export capacity, they would lose one of the parts of Spain that has been most dynamic in modern times," warned Edward Hugh, an economist in Barcelona. "If they have got problems implementing reforms and going forward anyway, what would it be like without the Catalans?"

Additional reporting by Reuters