The Economics of Catalonian Independence - by Lily P

On the 2nd of October tears rolled down my face as I watched the BBC morning news showing images of riot police beating up old ladies for voting; I watched and wondered what on earth had happened to the world; Spain, a western democracy, was using force to stop people from voting. The referendum may have been illegal but in a Western Democracy we simply do not use force against our own people because they tried to vote. But politics aside, let’s talk economics. We do not know what is going to happen to Catalonia, but if independence is the outcome, what are the economic implications?

Spain are Catalonia’s biggest trading partners consuming 35.5% of Catalan exports; indicating quite clearly that a break from Spain could have significant implications for Catalan exports, especially if trade barriers are implemented which may be the case. An independent Catalonia would not immediately qualify for EU membership and the EU market accounts for 65.8% of Catalan exports therefore, suggesting there could be some serious, negative impacts on trade; moreover, there has been an eerie silence from the EU headquarters in Brussels following the incidents; last week with very few senior figures willing to publicly condemn the violence, suggesting there may be a feeling of coldness towards an independent Catalonia. In fact, many countries may veto EU membership for an independent Catalonia in order to prevent surges in their own independence movements; Bavaria in Germany, Corsica in France, Sicily in Italy and the list goes on.

Catalonia’s economy relies most heavily on automotive (17.9%), Chemicals (16.4%) and Pharmaceuticals (7.6%), Food & Beverage (12.3%) and Computer & Electronics (13.7%); there exports make a significant 30% of all Spanish exports. Spain is ranked 20^th in terms of export volumes out of the 28 EU countries, as an independent country Catalonia 7^h in the EU behind Belgium, Luxembourg, Netherlands, Ireland, Austria, Denmark and Sweden whilst leaving Spain 24^th out of 28. Furthermore, Catalonia contribute over 19% of Spanish GDP despite having only 16% of the population and provide a source of employment for many Spaniards; estimates show Spain would lose 2% of GDP annually from the split.

So in the long term, financially speaking, it appears that independence may be viable, and depending on potential trade terms, even preferable; but trade terms are everything when 65.8% of exports rely on them not existing. In a ruthless world such vulnerability to a cold EU is a dangerous place to be. So many factors, so many potential outcomes, only time will tell; for now, sit back, let the politicians do the talking and watch the economics unfold.