Catalonia: The Long Goodbye
October 15, 2015
Not for the first time in recent history, a European nation is facing a secession movement, hundreds of years in the making. This time, however, it is not the British Isles with a future at stake. Amid surrounding tensions, questions, and votes, the autonomous Spanish state of Catalonia is at a crossroads for its political future.
Catalonia is located in Spain’s northeast corner (Source: Wikimedia)
Catalonia: In or Out?
The growing uncertainty is dangerous for Catalonia, Spain, and the European Community as a whole. Not only must Catalonia must decide whether or not to remain under the arm of Spain, it must do so quickly and decisively.
For the last several years, Catalan leaders have been negotiating with the Spanish political establishment to secure the right to secede. The fight came to a head this September, when parliamentary elections in the region gave separatist parties 48 percent of the vote – short of a mandate for the secession movement, but enough for a majority of Parliamentary seats.
Although Catalonia still operates semi-autonomously within Spain – similar to the system utilized by the Scots within Great Britain – the question of the Catalan future remains uncertain. And this future is unequivocally volatile.
To begin with, the uncertainty is punishing on the Catalan economy. On October 10, in light of the murky future Catalonia is facing, S&P cut the region’s credit rating down to a double-B minus. Even this rating is contingent upon Spain’s continued assistance with the Catalan budget and help in servicing debts the region has accrued.
Simply put, Catalonia may not be able to afford the economic consequences of secession. Not only is it in a weak state fiscally, but the Spanish government is propping up even that mediocre economic performance. Should Catalonia separate itself from Spain, not only will it suffer from the loss of Spanish financial assistance, but its credit rating will take an even harsher hit, as the current grade is contingent upon continued Spanish support.
It would be equally harmful for the Catalonians to wait. S&P has only maintained a double-B minus rating because it anticipates continued Spanish relief. Extending the debate only calls that assumption into question and risks prompting the credit rating agency to downgrade the region even further.
The risk is not Catalonia’s alone, either. Catalonia makes up over 20 percent of the Spanish economy and 25 percent of its exports. Further, an independent Catalonia would have to take some of Spain’s debt with it, but just how much would be contingent upon Spanish negotiators. Should Catalonia agree in such an event to take on debt commensurate to its population – 16 percent of the nation’s total – then Spanish debt could balloon from just under 100 percent of GDP to over 125 percent, a likely unsustainable figure.
So, too, must Europe watch on tenterhooks.
First is the question of the future of the Spanish economy. Catalan secession could have devastating consequences for Spain, and those could be felt throughout the rest of the European Union.
Not only that, but other regions with similar designs are watching Catalonia’s every move. The Scottish independence movement is merely regrouping before determining its next move. Even within Spain, the Basques are calling for similar elections with the hopes of gaining independence from the rest of the Iberian Peninsula.
As uncertainty runs abound throughout the European Union, countries already on the verge of leaving may be emboldened to cut their losses. The threat of a Brexit or Grexit increases as the economic future of the community becomes less and less clear, and EU leaders like David Cameron and Alexis Tsipras have already received mandates from their voting publics within the last year.
The future of Catalonia must be decided – and decided soon. It is in the interest of all parties involved to retain the relationship between region and state, albeit with some concessions likely involved regarding debt relief and political autonomy.
Those involved have the opportunity to set the standard for devolution of powers and a measured handling of independence movements. They would be wise to seize their moment quickly.
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