The economy matters in Catalonia’s regional elections
On February 14, Catalonia will hold regional elections. Although an event of this kind has traditionally determined public debate in Spain, for the first time in decades it is not making the front pages of Spanish or European newspapers, now focused on vaccines and political measures related to the virus. Somehow, the change in the debate has pushed independence down on the list of Catalan’s sentimental and political concerns, as they now focus on more basic issues such as health or the dark economic and labor forecast.
Even though the economy is key in any electoral process anywhere in the world, in Catalonia it tends to be overshadowed by the ever-present debate on nationhood and identity. national and identity debate. EPICENTER, the network of European think tanks, has produced a report that highlights the costs that a hypothetical independence of Catalonia from the rest of Spain and, therefore, from the European Union.
From an institutional perspective, the document concludes that the impact would be especially noticeable in public finances marked by the debt of Catalonia, the highest of all the Spanish autonomous communities at 6.48 per cent of the national total. Thus, the debt/GDP ratio of an independent Catalonia would skyrocket to between 112 per cent and 126 per cent. Catalonia would also be leaving the Eurozone, meaning it would need to create new monetary policy essentially from scratch.
Regarding the private sector, the study identifies three areas in which the effects would be particularly notable. First, in foreign trade, for which the EU market accounts for 80 per cent of Catalonia’s sales abroad (17 of its 20 main trading partners are within it). Secondly, in tourism, which, although difficult to foresee given global circumstances, during the months after the unilateral declaration of independence in 2017 Catalonia registered losses of €319 million, according to hoteliers in the region.
Finally, foreign investment, of which 78 per cent is of European origin of 78% of the total, so the exit from the Union would nearly stop the inflow of capital. The relocation of companies should also be considered, as it is estimated that since October 2017 some 6,000 companies have moved their headquarters.
On the other hand, in the short term, the tax revenues of the Catalan administration would be greater than with the Spanish autonomous financing system, since the region would manage the total collected amount. However, that would not imply that the Catalans enjoyed a higher disposable income. The Executive should lower taxes proportionally to the increase in tax revenues. This seems unlikely, as Catalonia is the community with the highest taxes regardless of personal income, has the worst score in tax competitiveness, and has the highest number of its own taxes (15). This leads to thinking that independence would be characterized by great interventionism.
In addition –something that seems to be always forgotten by the supporters of independence– the cost of assuming powers such as Defense, Justice, or Foreign Affairs, would mean an additional expense of between €37,900 and €39,800 million, which would discourage any intention to reduce the tax burden by the leaders of an independent state.
A few days before the vote, the polls predict that the social fracture of Catalonia, divided into two antagonistic halves, will be reflected in the electoral results. Beyond conjecture and utopias, it is certain that, for the first time in decades, the rather few Catalans who are expected to go to the polls on February 14 to determine the composition of their regional parliament will do so in the context of their daily worries, rather than sentimental diatribes.
