Catalonia Mulls Independence from Debt-Ridden Spain

Last Updated: 23, November 2012

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Catalans are expected to vote pro-independence parties into power this Sunday, giving them legitimacy to hold an independence referendum in two to three years time. Catalonia, in northern Spain, has an economy equivalent to the size of Portugal, believes it would be financially better off without the rest of Spain.

The secessionist threat is a major problem for Prime Minister Mariano Rajoy, who is trying to keep Spain in the eurozone and avoid an international bailout, despite a ravaging recession that has led to record levels of unemployment.

The movement has undoubtedly met with strong resistance from the Spanish government which is reluctant to free Catalonia.

Catalonia, which already enjoys autonomy from Madrid, represents 8 percent of Spain’s territory, 16 percent of its population and is responsible for more than a fifth of Spain’s economic output. However the region’s largest trading partner is, unsurprisingly, the rest of Spain.

The pro-independence lobby asserts that the region contributes more than it receives from state coffers, – a difference 16 billion euros to be exact – a result of what Reuters describes as a “complex system” of taxation.

If freed from the tax burden of belonging to Spain, pro-independence advocates say it could invest in its own production and better manage its economy.

Joan Canadell, a consultant, told the Guardian:

[quote] It’s not that we don’t want to contribute. But we don’t want to contribute to a model that doesn’t work, and that is counter-productive to our model. [/quote]

For Juan Rubio Ramirez, a Catalan born professor of Economics at Duke University, the motivation for secession has more to do with “nationalist sentiment” than economic calculations.

“Citizens in rich Catalan cities transfer resources to poor areas of Spain in the same way as they do to poorer areas of Catalonia but the first transfer seems to disturb much more than the second and I cannot avoid seeing the sentimentality inside that asymmetry,” he told the Financial Times.

However, polls suggest that Catalans have not thought through the consequences of freedom. Few realise that a breakaway would mean the region would be shut out of the European Union for years.

EU officials say an independent Catalonia would face the same membership conditions required of any other candidate nation. More importantly, each of the 27 member states can veto a candidate nation’s accession –meaning that a spiteful Spain can indefinitely deny Catalonia access to the EU Common Market.

As a member of the EU, union citizens are able to enjoy visa-free movement across the Schengen-Area and companies can trade freely covered by cross-border regulation while industries enjoy single regulatory rules across the Union.

Ramon Tremosa, a European parliament member from the incumbent pro-independence party in Catalonia, told the Associated Press:

[quote] I can’t imagine the 4,000 multinationals (in Catalonia) allowing themselves to be expelled from the EU, from the euro and the free movement of goods and capital, it’s not realistic. [/quote]

Despite their differences, Catalonia, like Spain, overspent during a decade-long property boom that crashed in 2007 and cannot borrow from international markets on its own now because its debt has been downgraded to junk.

The region is also, like Spain, languishing in deep recession and was earlier forced to make deep spending cuts and request for a 5 billion euros bailout from Madrid.

Catalonia faces debt redemptions of some 6 billion euros next year, and will likely seek financial assistance from the central government again.

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