A Catalonian split from Spain could be even worse than Brexit


According to Dutch Bank ING, if Catalonia, a Spanish region, breaks away from Spain in a move dubbed as “Catalexit,” it would bring the region into a long era of uncertainty and could end up having adverse effects that could “proportionally exceed” those of Brexit.

A referendum at the beginning of October is aimed to be held by Catalonia to determine if the region — which includes Barcelona – -should claim independence from Spain. The region has long battled for a preservation of its cultural identity.

Whether or not that referendum will take place remains uncertain, but if it does, the consequences could be immense.

“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,” Geoffrey Minne, ING economist writes in the note titled as “Catalonia: the cost of being single.”

The movement for the independence of Catalonia is mostly political, with campaigners claiming that for Catalonia to prosper and preserve its traditions for the future, they must be separate from Spain. However, ING argues that the economics of a “Catalexit” must be studied too.

ING says that a decline in consumption among households in Catalonia is the most obvious and immediate possible effect of Catalonian secession.

“The starting point when analysing the effect of Catalexit on consumer behaviour is the uncertainty it generates. A recent poll conducted by Metroscopia showed that 62% of respondents in Catalonia said they were “worried” about the future of their region, compared to 31% who said they were ‘excited’,” argues the note.

“There is only one step between worries and precautionary saving and if about two-thirds of all consumers decide to moderate consumption then this would dent private demand. If worries turn into panic then there could also be a run on the banks and capital controls.”

The uncertainty of consumers would be followed by uncertainty around the region’s business investments, Minne suggests, stating: “For business investment, uncertainty might even be more important than for consumers as any perception of political instability could affect foreign investment far more than local investment.”

Declaring its independence from Spain would automatically indicate that Catalonia would have to abandon the European Union, which would inescapably cause concerns around its membership on the European Single Market.

“Most foreign companies, as well as Catalan ones, fear falling out of the European single market,” writes Minne. “A consequence would be that investment could be delayed or redirected outside the region.”

“Probably the most impacted companies are those exporting to the EU. The EU accounted for 65% of exports and 70% of foreign investment in Catalonia over the last three years,” Minne added. In conclusion, Minne claims that “the economic cost for Catalonia could proportionally exceed that of Brexit for the UK.”

“All in all, building up the Catalan Republic turns out to be an expensive project and the bulk of the costs that could be cut depend on the goodwill of European governments (the Spanish one included).

“It remains difficult to evaluate the consequences of such an unprecedented event, but in the long run we can imagine that the economic cost for Catalonia could proportionally exceed that of Brexit for the UK.”