Friday, December 9, 2022
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Mónica Melle Hernández

​Catalonia... It's the economy, stupid!

Professor of Financial Economics at the UCM and member of Economists Against the Crisis

With only the law and with justice, the sovereign challenge of the Catalonian separatists will not be held in check. Catalonian bonds have for some been classified as junk bonds.

Crisis catalana monedas

With a volume of debt that exceeds 29% of the total debt of the Autonomous Regions as a whole and 20.9% of the Catalonian GDP, Catalonia pays a 12.4% yield for its bonds, while for the State bond Spanish pays 5.7%. Data on debt, maturities and the deficit of Catalonia make it difficult to find cheaper finance. And now, the independence challenge and the uncertainty that it generates aggravate the situation even more.

Catalonia has so far received 54,000 million Euros from the Autonomic Region Liquidity Fund, 2.5 times what the Andalusians have received, and almost 15 times what the people of Madrid have received.

How would Catalonia finance its bills, the salaries of Catalonian public employees and finance its deficit if it becomes independent? Because its exit from the EU and the Euro would make it even more difficult for Catalonia to access international financing markets.

Catalonia always invokes the "fiscal plunder" that they suffer with respect to the rest of Spain. They forget that solidarity is of the people and not of the Regions, it is the intergenerational solidarity inherent in a progressive fiscal system. They forget about the Social Security deficit that an independent Catalonia would have, which would mean that with their income they could only pay 78.5% of their pensions. and also forget about the costs that new structures of an independent Catalonia would involve, such as the Tax Agency, Defence, embassies and international organisations, their contribution to the EU, which adds up to almost 5,500 million Euros a year.

It is true that the regional financing model requires to be updated and that the principle of ordinality has to be incorporated.

Richer regions should contribute to poorer, but should not be made relatively poorer because if it. However, Catalonia forgets that its trade surplus with the rest of Spain and Europe. 75% of its GDP comes from exports, which would be subject to tariffs after a hypothetical independence. Trade would be reduced and with it there would be a fall in production and employment.


The decision that many companies are taking on the change of their headquarters is not surprising. To be out of the Euro is to lose competitiveness. Customers and investors fear a unilateral declaration of independence, in which Catalonia would be outside the Eurozone. What type of investors will Catalonia attract if there is no legal security? Because Catalonia would be outside the international treaties signed by the country to which it belongs, and would have to start negotiation from scratch, a process that, in the case of Brexit, is estimated to take at least six years.

Given this uncertainty, Catalonian banks, which owe companies and families 2.5 times the Catalonian GDP, have decided to change their corporate headquarters, such as Banco Sabadell that has moved to Alicante, and CaixaBank that moved its headquarters to Valencia and the of La Caixa Banking Foundation and Criteria to Palma in Majorca. Not only because they need to remain within the European banking system, and the supervision of the ECB and their role as lender of last resort, but also because they already began to suffer the consequences of withdrawing deposits from their customers in their accounts, given the loss of confidence and the fear of possible independence.

Economic arguments can stop this independence challenge. Let's not forget that the main support for independence has economic roots. It has been promoted by the Catalonian bourgeois elite and is greater among Catalonians with Catalonian parents and grandparents with higher incomes.

As was already the case with the Brexit advocates who argued that with the United Kingdom independence from the EU, they would fare much better and that "with the money they would not contribute to the EU they could finance a new hospital a week", in this case they are also using false calculations that neglect the disastrous economic consequences of leaving the Euro zone.

We begin to realise that the Catalonian crisis can damage the fragile growth of both the Catalonian and Spanish economy. Additionally, tensions between the central government and the Generalitat can affect, if not slow down, the confidence of companies and investments.

It is true that we are living through moments of intense tension, with overflowing emotions that prevent any rational approach to the problem, and that are also based on many falsehoods. Dialogue is quite difficult in the current situation of enormous division.

But we have to look for a fit of Catalonia within Spain. This it will only be possible within the framework established by the Law, which requires the Government of the Generalitat to withdraw the announced unilateral declaration of independence. To open a dialogue process, as recently stated by former President of the Government José Luis Rodríguez Zapatero, "if we live together, we decide together".
Mónica Melle is member of Economists Against the Crisis EFC 



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