Why Spain cannot afford to lose Catalonia, but Catalonia can

Why Spain cannot afford to lose Catalonia, but Catalonia can

Yesterday, Catalonia declared its illegal and undemocratic independence.

It’s easy to get swept up in the legislative chaos that the crisis has caused, but instead it’s worth stepping back to view why Catalonia is so important to Spain, and why Spain can’t bear losing the Catalan economy. And by the same data, the picture of a self-sustaining and vibrant Catalonia, well-connected with the world, emerges that shows independence as a viable prospect for the Catalan people.

At about €224 billion, Catalonia generates the highest GDP of any region in Spain – 20% of Spain’s total – despite covering only 6.3% of its territory. There’s a clear gradient of earnings per capita across the country: the north-east enjoys the highest GDP per capita (which is geographically closest to the rest of Europe) whereas the south-west receives the least. Spain cannot afford, quite literally, to lose Catalonia: Spain has only just recovered from the 2008 financial crisis that economically crippled it, and losing upwards of 20% of its future income could wreck its economy.

Catalonia is also the most popular destination in Spain for international tourists, receiving 23.8% of all tourists to Spain (18 million [2017]), despite the eruption of anti-tourist graffiti and protests this year. Barcelona is not just a vibrant tourist hotspot, though: 20% of visitors to Barcelona arrived on business, and it’s a major attractor of foreign direct investment (FDI), especially from the USA. 39.52% of greenfield FDI projects in Spain went to Catalonia: this means that there are a large number of multinational corporations expanding into Catalonia which have had no connections in Spain before, and are therefore responsible for building from the ground upward, leading to improvements in industry, job creation, and a positive economic outlook.

Barcelona is also currently the northerly trading post for Spain by sea – as it has been since Al-Andalus and Roman times, alongside Tarragona – as the 3rd largest Spanish port for cargo, and the largest port in Europe for cruises. It’s also under construction to double its size.

Barcelona, a city of business investment, and tourism (La Sagrada Familia in the foreground)

38.6% of all multinational companies in Spain are based in Catalonia, and the region is ranked as the 4th best region in Europe for attracting foreign direct investment in 2015. This means that if Catalonia were lost, Spain would lose over a third of its business links and external capital, which Madrid cannot sanction in a country with high unemployment. Simultaneously, however, it means that Catalonia has the potential to coexist with, and attract new, multinational companies as a connected independent nation.

Over half – by some accounts up to 65% – of Catalonia’s total exports are sold to the rest of the world, which demonstrates its ability to thrive in an international environment. Spain will make sure, with force if necessary, that it can always claim part of revenue generated from this external trade, and that it doesn’t have to buy Catalan goods (with their potential tariffs) to sustain its own economy. This is of concern for its horticultural sector, as some of the best irrigated horticulture is strung along the Mediterranean coastal region in Catalonia.  

Perhaps the most startling fact of all about Catalonia’s economy is that it is larger than Portugal’s.

The Catalan government is so intent on being able to impose its own taxes that it has already built the empty office blocks for its future tax collection agency in Barcelona

However, the sore point for many Catalans is that Catalonia is forced to pay taxes to Madrid at a cost of €10 billion per year, equivalent to 2% of its GDP. Despite being the most autonomous region in the world, Catalonia is denied its own non-centralised tax collection agency, in addition to its own foreign, defence, and economic policies. The Catalan Treasury Secretary estimates that Catalonia could collect an extra €42 billion from taxing VAT products, among other things, itself which are currently collected by Madrid. Catalonia also owes some €75 billion to Spain in public debt: leaving illegally (or even legally under the right negotiation) could force Madrid to take burden of that sum, which would be intolerable.

Nationalistic Catalans feel constrained by the current centralisation: they can’t control their own immigration laws, for example, and with 14% of the country not of Spanish citizenship, this is almost the highest percentage in Spain. But without Spain, Catalonia would have no defence, nor infrastructure for its land borders to Spain, Andorra, and France. The EU will not recognise Catalonia (at least in the short-term), and so it will not become part of the Schengen Zone. It will bear full responsibility for its own borders and currency, and any likely financial losses which will stem from it.

It’s been argued that Catalonia’s population size (7.5 million) – larger than Denmark or Finland – means that it will be able to achieve a vibrant, international, but socially cohesive society. Its economy will endure what is thrown at it, and is likely to still be the most desirable on the Iberian Peninsula, and easily capable of supporting a nation state, particularly without its tax allegiance.

So, the real reason why Spain cannot afford, at any cost, to lose Catalonia from its sovereignty emerges, though hidden beneath the illegality of the process.

Sources

https://www.statista.com/statistics/327063/gross-domestic-product-in-catalonia-and-spain/

http://www.fdiintelligence.com/Locations/Europe/Spain/Catalonia-s-FDI-on-the-Rise

http://www.fdiintelligence.com/Locations/Europe/Spain/Catalonia-s-FDI-on-the-Rise

https://www.reuters.com/article/us-spain-catalonia-immigration/catalans-woo-immigrants-in-quest-to-split-from-spain-idUSKBN19711U

https://www.theguardian.com/world/2017/oct/02/catalonia-important-spain-economy-greater-role-size

https://en.wikipedia.org/wiki/Agriculture_in_Spain

https://www.ft.com/content/62118282-a35a-11e7-b797-b61809486fe2

https://en.wikipedia.org/wiki/List_of_busiest_ports_in_Europe

https://www.statista.com/statistics/447801/foreign-tourists-visiting-spain-by-destination-region/

http://www.independent.co.uk/travel/news-and-advice/barcelona-locals-hate-tourists-why-reasons-spain-protests-arran-airbnb-locals-attacks-graffiti-a7883021.html

https://es.wikipedia.org/wiki/Econom%C3%ADa_de_Catalu%C3%B1a

https://es.wikipedia.org/wiki/Catalu%C3%B1a#Econom.C3.ADa

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