THE Spanish economy breathed a sigh of relief on Tuesday 10 October when the President of the Catalan Generalitat, Carles Puigdemont, proposed to “suspend independence” to open space for negotiations. A decisive separation by Catalonia would have terrible effects for the entire country, besides bringing Catalonia literally to its knees. But the danger is not over, and even if Spain succeeds in preventing the secession of its richest region, it is very likely that there will be significant economic damage anyway. The uncertainty about the future of national unity hangs like an albatross around the neck of one of Europe’s strongest economies. And we must not forget that Spain has definitely been out of the economic crisis for several years now, and can boast growth rates over 3% - to be precise, 3.4% in 2015 and 3.3% in 2016. These results have been achieved because of a significant increase in the competitiveness of the Spanish economy and a boom in tourism, with help from very low oil prices.
Before the weekend of the referendum, economists had predicted a structural slowdown equivalent to 2% of GDP, a value that could now be in danger of increasing. According to Andrea Shaechter, the International Monetary Fund’s mission chief in Spain, “the current prospects for the country are positive. But if they continue, the political tensions in Catalonia could undermine confidence in investments and in consumption.”
A foretaste of what could happen in case of secession came when the Madrid Stock Exchange, where bank stocks in general and those of the Catalan banking institutions in particular showed major losses, on the model of the fears that penalised London’s banking sector the day after Brexit (although those did not have to account for the split-up of a country). Analogously to what happened in London, the most important Catalan banks hastened to prepare emergency plans in case the worst should happen. CaixaBank, which is the third largest Spanish bank, for example announced that it would move from Barcelona to Palma de Mallorca in case of secession, while Banco Sabadell has already found refuge in Alicante in the Valencia region. And it is not by chance that after the announcement, the stocks of both companies recovered part of their losses from the previous days. For both banks, the fear is of losing the European guarantees, the BCE’s protection, the Euro and free trade, without considering that the region’s likely economic debacle would reduce funds, earnings and employment.
The first negative effects have already been felt in the manufacturing sector, as well. The day after the referendum, the Volkswagen Group car manufacturer SEAT closed one of its three plants, but then reopened it for business, while other Catalan companies listed on the Madrid Stock Exchange, with the exception of the pharmaceutical company Grifols, announced that they would leave Barcelona. The government of Mariano Rajoy also played a significant role in these decisions, because it decided to simplify the bureaucracy for companies that wanted to move their head offices and production facilities.
Spain, for its part, would lose almost 20% of its GDP in one fell swoop (€204 billion out of a total of 1,232 billion), not to speak of the most advanced region in many sectors (Barcelona is very strong in the automotive and pharmaceutical sectors). Furthermore, the autonomous community of Catalonia accounts for about one quarter of the country’s exports, is the leading region for tourism (18 million visitors), and attracts one quarter of the foreign investments in Spain as a whole, about €37 billion. According to Credit Suisse analysts, the government of Mariano Rajoy “must now show great political skill because if it fails it could run into problems with other regions, as well, and since he is leading a minority government, it is possible that new elections will be called.” The problem is that the Spanish prime minister has not exactly shown the “great political skill” mentioned by the Swiss bank in his handling of the Catalan crisis.