A future independent Catalan state would be more successfully achieved through a mutually agreed-upon resolution with Spain, rather than an uncertain and potentially detrimental unilateral secession, a major report has concluded.
The possibility of either a mutual or unilateral secession from Spain has been extensively assessed in a study produced by a consortium of European research institutes and think-tanks, released in July 2015, entitled “Scenarios of Macro-economic Development for Catalonia on Horizon 2030 – the Economic effects of a potential secession of Catalonia from Spain and paths of integration with the EU.” The research, which was carried out under the Directorship of Professor Rym Ayadi of HEC Montreal, was conducted between October 2013 and May 2015 by a group of five leading research centres comprising CIDOB (the Barcelona Centre for International Affairs), the Institute of Studies for the Integration of Systems (ISIS, Italy) E3-Modelling, Energy, Economy & Environment (E3M, Greece), the Centre for European Policy Studies (CEPS, Belgium) and the European Mediterranean Economists Association (EMEA).
Although the report noted that the EU has not yet experienced any secession movements within its borders, 2014 was marked by “massive mobilisations in Scotland and Catalonia, seeking to secede from the UK and Spain.” Whilst the Scottish referendum rejected separation from the UK, in Catalonia, political and legal quarrels with the Spanish government have continued. Against this background, the Horizon 2030 study simulated and assessed several scenarios for the future development of Catalonia within the rest of Spain and within the EU.
Economically, the report explained that Catalan secession from Spain could be brought about by several factors. These ranged from differences in policy preferences to heterogeneity, that is, the variation in redistribution efficiencies, mutual insurance and prospects for economies of scale in public-goods provision, inter-regional differences in taxation and the public finance benefits of large jurisdictions versus the costs of political heterogeneity.
Two possible outcomes
A change in the relationship between Catalonia, Spain and the EU could lead to the reform of the European Union. This could lead to two further possibilities – one in which Catalonia becomes a new Member State within the Union after negotiating and agreeing upon independence from Spain, and one in which it operates as a region of Spain with greater fiscal autonomy than it has at present. In the second case, says the report, Catalan autonomy would be similar to that of the Basque region. A final outcome could be for Catalonia to leave the EU following a unilateral secession and then to exert influence from outside the EU reform process, reducing Spain’s veto powers or those of other member states, ending in Catalonia’s re-admission to a new EU. However, Catalonia would benefit more under a mutually agreed secession, as the reduction of uncertainties and risks would allow for a faster economic recovery following the shock of independence from Spain.
Short-term and long-term effects
In the short term, general uncertainty, high interest rates and a volatile investment environment, triggered by the decision to secede, would slow the growth rate of Catalan GDP. This would be more pronounced if the decision to secede were unilateral. However, the structure of the Catalan economy and the pursuit, via fiscal policy, of a balanced public budget, could deliver higher than predicted GDP and employment growth rates once the transition to sovereignty was over. The change of the fiscal imbalance between Spain and Catalonia would benefit the Catalan economy due to increased public investment and its economy-wide “multiplier effects”.
In the long term, increased infrastructure capacity would boost productivity, improving the overall competitiveness of the economy. Although additional public spending would reduce unemployment, it could adversely affect competitiveness because of upward pressure on wages. However, as the fundamentals of the Catalan economy strengthened – sustainable debt, a balanced public budget and low unemployment – uncertainty would diminish and interest rates would fall. Furthermore, if Catalonia were to change its current debt sharing agreement with Spain, there could be a significant beneficial impact on the Catalan economy. In addition, there could be an opportunity for greater Catalan trade diversification, were it to move away from Spain as its main trading partner. A European Union reformed into a “European Political Union (EPU)” would “change the game for both Spain and Catalonia negotiations”, the study said. “This is assumed to unfold under the pressure of disruptive economic and geopolitical dynamics, of which today, we are already seeing a number of signals.” If this were to happen, said the report, Catalonia could achieve independent Member State status within the EPU, either under the mutual agreement or a unilateral scenario, although this might not come about if negotiations between Catalonia and Spain resume sooner.