Catalans voted in heavy favor of a split from Spain in a referendum on Sunday, October 1 2017. The primary concerns of a "Catalexit" split has to do with political and cultural ramifications. However, the Dutch bank ING is also considering the economic impacts of Catalonia's separation from Spain. Projected estimations claim that the economic fallout could "proportionally exceed those of Brexit" given that Catalonia would "automatically drop out of the European Union." Experts claim that there is "no practical way for Catalonia to become an independent country within the EU, as most supporters of independence want."
Presently, Catalonia constitutes nearly a fifth of the Spanish economy. It is the leading exporting region, producing 25% of all exports. It also contributes 21% of the country's total taxes, which is more than what it gets back from the government. This comparative imbalance has fuelled separatists to argue that "stopping transfers to Madrid would turn Catalonia's budget deficit into a surplus." Should Catalonia unilaterally declare independence, it "might also refuse to take on its share of the national debt."
Furthermore, the regional capital of Catalonia, Barcelona, is adept at attracting investment from foreign companies (such as Volkswagen [ETR: VOW3] and Nissan [TYO: 7201]) who use it as their base. A win for the separatists may "cause the euro to decline by as much as 5%." Yet, in spite of the positive referendum, neither Madrid nor the EU are likely to accord Catalonia independent status by virtue of the vote alone. Instead, the Catalan government will likely use it as leverage in "future negotiations with the Spanish government."
By dropping out of the European Union bloc, the cost of exporting goods from Catalonia to EU members and other nations would likely increase. It would face "significant trade barriers" by joining the "small list of countries that are not World Trade Organization members." Hence, the price of imported goods in Catalonia would increase, and job losses would follow. Furthermore, independence "could also make it more expensive for the region's government to borrow." Catalonia may continue using the euro, but it would lack a seat at the European Central Bank.
Should Catalonia indeed break away from Spain, it would effectively "plunge the region into a long period of uncertainty." Previously, Catalonia had struggled to preserve its cultural identity, and experts believe that the desire for Catalan independence is primarily political in its origins. In Sunday's referendum, 90% of all voters (comprising of a 43% turnout, relative to the population) voted in favor of a split. However, the outcome of the vote is not recognized by Spain's central government.
Those in favor of Catalonia's independence focus on the necessity of a split in order for Catalonia to "prosper and maintain its traditions." However, the economic outcome of a Catalexit will likely result in a fall in consumption among Catalan households, due to the presence of the political uncertainty that accompanies a geopolitical shift of a historical scale. Furthermore, recent pollings conducted by Metroscopia indicate that 62% of Catalonian citizens were "worried" about their region's future, whereas 31% were "excited."
However, should these concerned consumers indeed decide to "moderate consumption" in attempt to generate precautionary savings, then this would dent the economy's flow of private demand. Furthermore, if the citizens are presented with true cause for panic, then there is a great possibility of a bank run (defined as a massive rush to transfer assets out of a bank, driven by fear of the bank's pending insolvency, and shift them into government bonds, precious metals or gemstones) and capital controls (defined as a measure taken by a government, central bank or regulatory body to "limit the flow of foreign capital in and out of the domestic economy."
Furthermore, consumer uncertainty would trigger uncertainty in businesses investing in Catalonia. The dangerous possibility of political instability could "affect foreign investment far more than local investment." By leaving Spain, Catalonia automatically gives up its membership in the European Union, which would "inevitably cause issues around its membership of the EU's single market." By exiting the single market, external investments will either be delayed, or "redirected outside the region."
Companies that export to the EU account for 65% of exports and 70% of foreign investments in Catalonia in the past three years. These percentages could come under threat, should the Catalan Republic indeed have to be build up separately, from scratch. Experts believe that the "bulk of the costs that could be cut depend on the goodwill of European governments."
