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2 Oct, 2017 11:47

Spain would lose a fifth of economy if Catalonia breaks away

Spain would lose a fifth of economy if Catalonia breaks away

On Sunday Catalonia voted to secede from Spain and become independent. If this happens, it will have considerable economic impact on the country and region. Which is why Madrid will do everything in its power, including the use of force, to maintain control.

Catalonia is Spain's most productive region and generates about 20 percent of the country's GDP and roughly a third of its exports. The region contributes 21 percent of the country's total taxes, which is reportedly more than it gets back from Madrid.

Catalans, who support independence, believe the region could turn its budget into a surplus after stopping transfers to the federal government.

Moreover, Catalonia attracts a record amount of investment, as nearly a third of all foreign corporations and production facilities represented in Spain are based in Barcelona or its outskirts.

However, it's not all good news for Catalonia.

Brussels has warned the Catalonian government that if the region becomes independent, it won’t be granted EU membership. That's because all the current members of the bloc, including Spain, would have to support the move.

“We currently see no practical way for Catalonia to become an independent country within the EU, as most supporters of independence want,” economists at Berenberg Bank wrote in a research note, seen by CNN Money.

That means that the region may enjoy the privileges of free trade inside the EU only if it is part of the bloc, or as part of Spain.

Otherwise, the cost of exporting goods from Catalonia, mainly fruit, and vegetables, to EU members and other countries would significantly rise.

“It would join the small list of countries that are not World Trade Organization members, meaning it would face significant trade barriers,” said Stephen Brown, an analyst at Capital Economics, as quoted by the media.

Unprofitable exports may lead to shutdowns and rising unemployment with the GDP of a new state shrinking by up to 30 percent. Moreover, the region will have to pay off a fifth of Spain’s sovereign debt, which reportedly amounts nearly €200 billion.

“As with Brexit, we believe that any Catalexit would plunge the region into a long period of uncertainty and would most probably be negative for the private sector,” said ING economist Geoffrey Minne.