The economic cost of the Catalonia crisis

The economic cost of the Catalonia crisis

The major political crisis in Spain is starting to have economic consequences. Business, banks and companies are moving their legal headquarters from Catalonia, and GDP forecasts are down. Catalonia has became synonymous with uncertainty.

A significant number of businesses are moving from Catalonia

Spanish Government approved on 6 October a decree to make it easier for firms to transfer their legal base out of Catalonia without having to hold a shareholders’ meeting. Business are subsequently moving their legal base from Catalonia “in order to protect the interests of their customers, shareholders and employees”.

To date more than 1,500 companies have moved due to the political uncertainty. This includes major corporates such as Gas Natural and Abertis, the two largest Banks headquartered in Catalonia (Caixa Bank and Sabadell), and well known consumer brands such as as Codorniu, Bimbo or Cola Cao.

The economic outlook has been clouded by calls to boycott Catalan products, and by the reduction of hotel bookings. The Chair of the Barcelona Chamber of Commerce, Miquel Valls, announced in a press conference on 25 October a reduction of the 2018 Catalan growth forecast, and called for action by the government. The Chair of SEAT, Luca de Meo, addressed a letter to the company’s 14,500 Spanish and Catalan employees on 24 October, explaining that the company will maintain its headquarters in Catalonia but that this situation could change depending on the legal and security environment.

An independent Catalonia would exit from the Euro and key institutions

Catalonia breaking away from Spain would yield serious economic risks. An independent Catalonia would be out of the European Union (EU) and the Euro. It would be a third party in commercial relations with the EU and would be charged the EU’s Common External Tariffs. Customs border controls would be established. This is a key point, as the Catalan economy is highly dependent on foreign trade: in August 2017, Catalonia represented 25.4% of the total Spanish exports that month.

Banks are particularly vulnerable because in an independent Catalonia they would not operate under the supervision of the EU Central Bank and the regulations of the European Banking Authority. This means that the banks could not count on EU coverage.

The economic (and political) cost at the national level

The impact of the Catalan crisis saw Spain’s growth forecast for 2018 lowered. The Independent Authority for Fiscal Responsibility anticipates a downward correction from 2.6% to 2.3% due to the political and institutional uncertainty. But this margin could widen, with the impact on public finances, competitiveness, consumption, investment and employment all depending on the degree of the crisis.

Catalan GDP plays a key role in the Spanish economy at nearly the 20% of the total, so the worst-case scenario of an intractable, violent standoff would see a bigger deterioration in the Catalan economy and have a negative effect at the national level.

Political and regulatory stability, and continuity within the European Union, will be essential for economic stakeholders – and these do not seem to be forthcoming. On Friday 27 October, the Spanish Government took control of Catalan institutions, removed Catalan leader Carles Puigdemont from office and called for fresh regional elections on 21 December. The longer the atmosphere of insecurity and uncertainty in Catalonia persists, the more significant the consequences will be.

Categories: Economics, Europe
Tags: Catalonia, EU, Spain

About Author

Ana Belen Perianes

Ana Belén Perianes holds a PhD in Peace and International Security Affairs and she is specialized in European Security and Defense; Mediterranean, Near and Middle Eastern Security; US Foreign Affairs and Women, Peace and Security. She obtained her doctoral degree with her thesis: "The George W. Bush Foreign Policy (2001-2008): Consequences for the international security". She has worked as researcher in several Universities and as Technical Adviser in the Spanish General Courts. Currently, Ana B. coordinates Spanish Women in International Security-SWIIS and she is a member of the Spanish Graduates in Security and Defense Association (ADESyD) steering board.