Catalonia wants to split from Spain. That powerful factions within the French-bordering region want to establish their own nation is not necessarily new, but the steps it’s taking to get there have accelerated in recent weeks.
The seismic event at the center of it all, of course, was a referendum in which 90 percent of pollers voted to leave Spain and form an independent nation. The event itself was highly controversial, with Spain condemning the vote and physically preventing some in the population from voting in some locations.
Since the referendum, the story hasn’t stopped. Spain has declared the vote illegal, both on its merits and in the way it has been organized. There have also been calls that the low turnout actually indicates that most Catalonians don’t want to leave the region; in fact, a survey this July actually only showed 35 percent support for the move.
But the vote its done, and its consequences could be substantial. If nothing else, it has caused a flare up of tension between Catalonia and the country in which it is still, for the time being, located. The resulting uncertainty could impact both the local and wider regional economy in a number of ways.
The Short-Term Economic Impact of the Catalonia Referendum
For Spain, the uncertainty surrounding Catalonia’s future could have a very immediate impact. The region makes up one fifth of the country’s economy, and already businesses have stopped operating at normal rates as workers strike and businesses refuse to sell their goods.
As a result, economic experts are beginning to discuss just what impact this uncertainty could have on next year’s economic growth rate, regardless of what happens next. And if Catalonia indeed gains independence in the near future, that impact would become even more pronounced.
For the region itself, a split from Spain could lead to immediate disaster. It would mean leaving the EU, and immediately losing the free trade opportunities that any member country enjoys. That, in turn, would raise prices within the region, result in a loss of business leverage, and ultimately lead to higher unemployment.
We are already seeing the beginnings of this trend. As CNN reports,
A steady stream of companies have already announced they are switching their legal headquarters out of Catalonia and into other parts of Spain as a precautionary measure following the referendum… If Catalonia wins its independence, business leaders worry that the new state will have no formal trade agreements with other countries, creating a situation even more serious than Brexit, said Carsten Hesse, a European economist at Berenberg Bank.
Potential Long-Term Implications for the EU as a Whole
Short-term, we are already seeing the consequences of the referendum for Catalonia and Spain, both in terms of the economy as a whole and in relation to the local labor market. Long-term, though, the effects could be far more wide-reaching.
In many ways, Catalonia’s strong economy provides a boost for the entire region. In terms of economic size, it’s similar to Finland or Denmark. Barcelona’s port is the largest in the Mediterranean, and one of the biggest in the world.
No, imagine isolation in this region. With imports and export drastically declining as a result of leaving the EU, the trickle-down effect could be felt in other industries around Europe. Even ship-based trade into Spain would immediately becomes more difficult.
Combine that with the potential migration out of Catalonia, and the effects on the European labor market cannot be underestimated. Membership in the EU allows not just for free trade, but free travel. We could easily see a large movement of professionals out of Catalonia, and into stronger economies. That, in turn, could lead to an excess of job demand in those economies.
How will the labor market react to the economic uncertainty created by Catalonia’s referendum? Ultimately, only time will tell.
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