Wednesday, November 21, 2012

Catalonia's independence is a pipe dream

Independence fervor in Spain's region of Catalonia is growing. Driven by severe austerity measures, the population believes that by breaking away from Spain, things will somehow get better. Catalonia's election will be taking place this Sunday.
Reuters: - Spain's wealthy but financially troubled region of Catalonia chooses a new government on Sunday in an election that could trigger a constitutional crisis over a resurgent Catalan breakaway movement.

Opinion polls show most Catalans will vote for pro-independence parties, either from the left or right, handing their leader a mandate to hold a referendum on succession, despite strong resistance from the Spanish government.
This desire for independence is a fairly new phenomenon in Catalonia. Being the wealthier region, Catalonia's citizens think that they are being asked to bear disproportionate burden of the nation's high taxes.
Reuters: - Like the Basque Country, which also borders France, Catalonia has its own language and sees itself as different from the rest of Spain.

Catalonia's busy Mediterranean ports, car factories, chemical plants and banks account for a fifth of Spain's economy. Until recently the region of 7.5 million people was content to push for greater self-governance - such as collecting and spending its own taxes - without seeking independence.

But Spain's recession, with 25 percent unemployment and drastic public spending cuts, has sharpened a Catalan perception that they are taxed unfairly.
The opinion has shifted drastically toward independence recently.

Catalonia's independence poll (Source: CS)

There are of course incredible obstacles to Catalonia's independence. Here are some of them:

1. Spain's constitution prohibits a referendum on independence. That means the best the region can do is hold a non-binding unofficial referendum.

2. The Eurozone is unlikely to accept Catalonia as a separate state, given it has a difficult enough time dealing with a number of highly indebted nations. The issue of maintaining the euro in the Spanish region may become untenable. And that, at least in the short term, could destroy the region's commerce.

3. Given that the region is a fifth of Spain's economy, the separation could spell disaster for Spain's plans to pull itself out of its economic and fiscal mess. In fact Spain would become one of the poorest states in the Eurozone. The nation will do whatever it takes to "preserve the union".

GDP per capita (Source: CS)

4. The biggest issue of course is Catalonia's debt. In spite of being the wealthiest region it is also the most indebted (22% of region's GDP). It certainly has no ability to roll its debt in the public markets without Spain's regional bailout fund (see discussion). And Spain's central government will threaten to pull the plug on this support should Catalonia move toward independence.

Catalonia stands a somewhat better chance of obtaining more autonomy over its finances - which may be good enough for its citizens. But a full independence will remain a pipe dream.




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