Monday, May 29, 2023
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BBC Editorial

​What the "Montreal effect" is and how Catalonia's economy can be hit by the independence movement

Just after the president of Catalonia, Carles Puigdemont, proposed to suspend the declaration of independence of Catalonia to negotiate with the Spanish government, the Planeta publishing house, the most significant in the country and one of the leaders in Europe, announced the transfer of its headquarters from Barcelona to Madrid.


Planeta is the latest big corporation to make a similar decision in recent days, after the Catalan government on October 1st organized a referendum of self-determination considered illegal by the Spanish Justice and announced that it would declare independence if the yes vote prevailed.


Five keys to understanding the tension experienced in Catalonia by the independence referendum of October 1st:

According to their data, 90% of the votes supported the creation of a Catalan state in the form of a republic, although the participation was 43% of the census in a process that was held amongst a strong police deployment to try to prevent it.

Banco Sabadell was the first to announce its leaving and since then the flight of companies has not stopped increasing: in just one week, six of the seven Catalan companies listed on the Ibex 35, the main Spanish selective index, had taken the same decision.

Catalonia has been left without the headquarters of its two banks, Sabadell and Caixabank, and without the one of the main energy industries, Gas Natural, and some of the firms most linked to the history of this Regional Government, such as the famous brand Catalan cava Codorníu, without ruling out others following the same path.

This has led different experts and financial media to point out that Catalonia may be suffering from the "Montreal effect".

What is it this about? 


When the Quebecois independence party won the elections in the Canadian territory of Quebec in 1976, there were people who went to take their savings out of the bank to deposit them elsewhere. Then began a campaign for the independence of the region that led to the departure of leading companies and the exodus of hundreds of thousands of people. 

The ruling party managed to legally hold two referendums for independence in 1980 and 1995, and ins immediately before and after there was a period of instability.

"They lost the referendums, but it caused great uncertainty about what separation would be like, if it would be possible, or what the economic cost of the separation would be" Christopher Ragan, associate professor of economics at McGill University in Montreal, tells the BBC, this specialist in macroeconomics emphasized, it is "particularly bad for long-term investments", and the capital gave us a good example of it. 

"The entire financial sector moved to Toronto," recalls the university's professor Reuven Brenner, who participated in the commission to discuss what would happen to the debt in the event that Quebec became independent.

Historically, Montreal was the financial centre of Canada, but in the 60s and 70s most of the banks moved to Toronto, the capital of the province of Ontario, and never returned, according to BBC World from the Institut du Québec. Even the Bank of Montreal itself took the base of its operations away from the city that gave it its name.

However, for many of the economists consulted by BBC World it was a matter of time before this happened as the financial decline of Montreal took years to develop and the pro-independence movement was one more element behind it.


But the worst consequence, analysts agree, was the exodus of people. "The Montreal effect was that around 400,000 people left Quebec, mainly young people, from the financial sector, from the business world, which is why it was not a situation that could easily be reversed:" when people go to Toronto or to New York it is quite difficult to attract them back", Brenner emphasizes.

The growth was slowed down according to this expert and during the decade of the 80s to the 90s there was "not a single construction crane". "The price of apartments fell by 50%" he says. 

Likewise, the crisis was exacerbated by the linguistic policy of the ruling party. French was imposed in different areas -such as in government institutions, large companies and schools- and a social fracture was created that weighed heavily on sectors such as business, where English reigned, experts say.

"In the twentieth century, I do not think you can find two cities in which one would make such a great gift to another as Montreal to Toronto in terms of human and financial capital" said Joe Martin, director of the Canadian Financial and Business History Initiative of the Rotman School of Torontoin his analysis in conversation with BBC World.

Martin insists that the independence movement "accelerated a process" (the financial flight) that had already begun, but he has no doubt that this caused an increase in the number of people who left the city and also capital flight, particularly as regards savings.


For experts like Professor Benner, it is still too early to give an answer to whether Catalonia will be hit by an effect like Montreal. At the moment, he considers that the fact that companies are moving their headquarters, as is happening in this Autonomous Region, does not have a great effect in economic terms, although it does carry great symbolic and political weight.

Would Catalonia survive as an independent state? What would happen now with Catalonia after a tense referendum on independence in which the "yes" won? 

"It has no real consequence, they are trying to stabilise the situation and stay under the umbrella of the European Union," he says.

His university colleague, Professor Ragan, makes it clearer: independence movements "generate many questions about what will happen, what would be the relationship between Quebec and the rest, between Catalonia and the rest of Spain, and has a really bad effect on the economy "and, wherever it may be, he warns, "the outcome will be the same problems."



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