Alfons López Tena was a member of the Catalan Parliament from 2010 to 2012, specializing in clean governance and Catalan independence issues. Elisenda Paluzie is an associate professor of economics and the Dean of the Faculty of Economics at Barcelona University. They gave us permission to run this op-ed.
It is difficult to make predictions, especially about a hypothetical future, but the impact of independence on economics — for both the newly created State and what remains of the older — is a foreseeable outcome in the light of more than 150 secessions occurred in the last hundred years, backlashes and black swans — for better or worse — excluded.
First things first, here you have a table with some fundamentals since you are not supposed to know them at your fingertips. Be aware that when we say Spain, it means the nowadays Spain excluding Catalonia. All data, even €/$ exchange rate, are 2014’s.
Note: Neither Catalonia’s nor Spain’s exports include sales to each other. Both Catalonia’s and Spain’s exports include intra and extra-EU trade.
The main difference between secessions has been, and always shall be, if they are a covenant’s upshot or they are won against the — often furious — will of the former State, so let’s go by parts, as Jack the Ripper said:
1. Velvet divorce scenario: agreed secession.
The independent Catalonia is recognised by Spain, becomes a full EU member- state, enters the UN and all the international organisations, assumes its rights and obligations under the existing treaties, etc.
In this case few are the economic impacts on economics since almost everything goes on as usual. Catalonia would gain full control of its own taxes, hence around €16 billion ($21 billion) wouldn’t be siphoned off by Spain every year; economic policies best suited to Catalan needs may be developed if voters choose wisely; and both parts take their fair share of former Spain’s public assets and debt in application of the Vienna Convention of 1983.
Spain’s only loss should be the fore-mentioned Catalan taxes, around 2% of Spanish GDP every year: a big but not an overwhelming blow.
2. Sour divorce scenario: unilateral secession.
If Catalonia succeeds to become, against the Spanish opposition, an independent State whose central authorities exercise effective control over population and territory within defined borders, and it overcomes the difficulties involved — such as raising taxes and making public and private services work — , the effects on economics are closely related to Spain’s success or failure to expel Catalonia from the single European market and the euro.
The only way to deprive European businesses and people of the single market rights they now have in Catalonia, and strip Catalan businesses and people of their single market rights all around Europe, is an unanimous decision of the 28 member-states. Otherwise these rights cannot be forfeited.
There are two sub-scenarios:
2a. From impact to wallop: Secession inside the European single market.
If Spain fails to get Catalonia off the European single market and the euro, but blocks its membership as an EU member-state — that requires an unanimous decision — , its reprisals against the independent Catalonia would be similar to the Spanish policies on Gibraltar and China’s on Taiwan: to make Catalan life inside the European single market and the euro highly bleak and rueful, and doing its best to clog any Catalan endeavour to become international organisations’ and treaties’ member.
Spain wouldn’t even recognise the existence of independent Catalonia, it wouldn’t agree to negotiate any partition of public assets, and it surely wouldn’t accept the former Spanish and now foreign pensioners’ entitlement to be paid their earned pensions.
In this case Catalonia should just take the Spanish public assets that dwell in its territory, and pay its pensioners with its own raised taxes, as Spain nowadays does in a pay-as-you-go pension system.
The main impact would be on debt: Spain retains all its €1 trillion debt ($1.3 trillion) with a shrunk GDP after losing Catalonia’s GDP, that is 19% of the nowadays Spain’s GDP — therefore its debt-to-GDP ratio would soar to 114% from the currently 100%.
Catalonia’s debt is €64.5 billion ($85.8 billion), 30.9% of its GDP, and Spain owns 60% of it. This is a powerful tool in Catalan hands to retaliate against the Spanish reprisals — such as behind-the-curtains officially-sponsored commercial boycotts doomed to end quickly: not to pay the former Spanish Catalonia’s debt owed to a rowdy Spain.
Whence a not-agreed independence inside the euro and the European single market should be an acrimonious but manageable scenario, with huge but limited economic damage for both Catalonia and Spain.
2b. From wallop to Armageddon: Secession outside the European single market.
A completely different outcome will arise if Spain succeeds to implement an unanimous EU decision to wipe Catalonia off the euro and the single market, hence to impose tariffs on Catalan goods and services as a third country.
A Spanish commercial war would follow to take Catalonia out of the Spanish market, where Catalan goods and services are sold up to €39 billion ($51 billion), 18.5% of Catalan GDP. Since even newly independent countries are not prone to turn the other cheek to their would-be ruffians, those Spanish moves would surely provoke akin Catalan measures to wipe Spain off the Catalan market, where Spanish goods and services are sold up to €27 billion ($36 billion), 3,1% of Spanish GDP. Catalonia could also block or otherwise clog the main land Spanish connections with Europe, that happen to pass through Catalan territory.
Hic sunt leones, sailing uncharted waters in an Armageddon scenario for both Spain and Catalonia.
These are the likely scenarios of the economic impact of secession for both players, a high-stakes game for strong nerves’ people.
Whoever blinks first loses. A lot.