Good morning Investors, traders and speculators. We want to share with you our perspective on Catalonia's independence and what it means for the Spain and "FC Barcelona" team.
If you have any questions do not hesitate to ask us.
A little more than one year after Britain answered “Yes” to the question posed with the undertaking of the Brexit referendum, the Catalans are acting up in their turn. In early October, the referendum for Catalonia’s independence took place, and as with the Brexit referendum, the “Sí” side won.
Let’s focus on history for a bit to understand more about the desire of independence. The Catalan independence movement has been at the fore front of debate for quite some time now for the wealthy North-eastern province of Spain, which contributes circa 20 % of Spain’s overall GDP. The first pro independent political party was born on 1922, known as “Estat Catala” or “indépendantisme Català”. It was supporting the idea that Catalonia would never reach its economic, social, and cultural fullness as long as the region was part of Spain. Today, even if the political parties have evolved, the desire of independence still exists in the Catalan people’s hearts.
Despite the Spanish government’s restrictions, the regional ballot took place on October 1st, Madrid has been multiplying measures to avoid it, albeit in vein regarding the attempts of north-eastern provinces wishes for it to stand. Although the ballot is considered as illegal by most of the Spanish population, separatists have already adopted a law that aims to organize and oversee the transition towards an independent state. This law provides the establishment of a constituent assembly in order to make a new constitution, and the organization of a new referendum to make it approved.
However, new President of the Catalonia Region, Carles Puigdemont, declared Catalonia’s independence while proposing to suspend the results of the referendum for some time. You don’t get it? We neither.
This statement gives the President some time to hold further talks with Spain. He’s simply waiting for the Spanish government to accept not to use its veto right to block the Catalonia entry in the European Union. Unfortunately, it was wasted effort. In fact, everyone has judged Carles’ sleight of hand as inadmissible. Moreover, independents went further and defined it as a betrayal.
But do you only know the actual consequences of such a diplomatic event? What would exactly this separation lead to?
A huge economic impact for Spain
From a demographic perspective, let’s remind ourselves that Catalonia is the second most populated area of Spain, even before Madrid. In fact, if the separation actually took place, Spain would loose over 7 millions inhabitants which equals to one in ten Spanish people. Furthermore, Catalonia shelters more than 500 000 companies, whilst mostly SMEs, the biomedical industry is thriving and providing real innovation, whose headquarters are located predominantly in Barcelona. These companies represent 20% of the Spanish wealth. Without Catalonia, Spain would drop from fifth to fourteenth place in the ranking of the most important European countries while Catalonia would inch up to the seventh place.
Moreover, the separation would cause a huge loss to Spain regarding its tourism activity. Indeed, Catalonia is the leading tourist destination for travellers into Spain, one of their most affluent and notorious industries. Thanks to the beautiful city of Barcelona and the Costa Brava, the area generated 50 billion euros in 2016. About 18 million of foreign tourists went to Catalonia the same year. In addition, Barcelona’s airport is the second biggest in the country with low-cost budget airlines attempting to make it a European hub for their long-haul flights to America. As for its port, it’s the third largest one in the country thanks to import of goods, the heavy exporting from Catalonia within the automotive industry and the traffic generated by cruises.
A troubled start for Catalonia outside the EU
In fact, if Catalonia actually declares its independence, it will be forced to leave the EU and apply to be part of it as a new state. It’s clear that the current geopolitical context involves the fear to welcome new countries inside the union. Beside, there is no doubt that Spain is willing to use its veto right to refuse the entry of Catalonia, which will face some troubles to begin on its own.
The high unemployment rate of the country would definitely be one of those troubles. Even if the area’s rate of 13.2% is lower than the whole country’s rate of 17.2%, this fact must be put into perspective. Indeed, the independence would have a huge economic impact on Catalonia. Today, the public debt represents the third of the area’s GDP, which puts Catalonia at the third place of most indebted areas of Spain in the first half of 2017. The Spanish Minister of the Economy, Luis de Guindos, believes that Catalonia would see its GDP dropped by 25% to 30% and its unemployment rate doubled. Other economists contend there are lots of reasons not to worry. The prominent economist Xavier Sala-i-Martin assures that the GDP would remain still in short term and would rise by 7% afterwards. Furthermore, we must not forget that leaving the EU also means loosing the common euro currency and finding a new one.
Independents have also highlighted the fact they would immediately take the control of land, sea and customs borders, but they didn’t specify how they would do it. Moreover, leaving the EU means leaving the Schengen area, but it’s difficult to imagine a totally closed state. It’s easier to think about a free circulation of people for the EU nationals, like the Principality of Andorra for example. Regarding the flow of goods, Catalonia would find itself in a complicated situation because of new boycotts, relocations and taxes. There is no doubt that the European Parliament will establish a tax on Catalan products considering they will not be part of EU anymore. Catalonia will be forced to tax imported goods in order to protect its companies.
Finally, the independence could scare investors while Catalonia has brought 14% of foreign investments in Spain.
And what about sports?
There are not only economic and politic consequences to this separation. Unfortunately, Catalonia’s independence would cause a huge disaster for all the football supporters in the world. In fact, the famous football club “FC Barcelona” could be expelled of the Spanish championship named “ La Liga”. President of the Liga, Javier Tebas, declared “Catalan’s football clubs will not be able to play in Liga if the independence took place”. It’s a very crucial decision as football is considered as the second religion of the country. Furthermore, the separation could strongly weaken La Liga because of television rights and advertisement. Generated by FC Barcelona especially and their city rivals Espanyol.
In any case, we are potentially witnessing the birth of the 198th country, although this will not happen as quietly or efficiently as the separatists anticipated. This declaration of independence would cause heavy losses not only to Spain, but also to Catalonia, especially considering the lack of support from the European Union – and yet Carles Puigdemont declared on the 10th of October in front of the regional Parliament “Catalonia will be independent”. The one yet known as the “master of suspense” promises to surprise us again in the following days.
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Written by Eva Bellet│Independent Geopolitics Analyst
Edited by Graham Laxton & Vee Venski
This article is not a promotion of financial investment. Investing money in financial instruments is risk-reward process. Losses and gains are part of financial investment process. Only invest money you can afford to lose.