As we approach the Catalonia consultation deadline, due November 9th, pro-independence activists are raising the stakes. Madrid´s mood of self-restraint has served to embolden the separatist position. While most observers believe the Catalonian government wouldn´t dare to break the law and proceed with the referendum, it might be tempted to encourage widespread disobedience. Should Catalans go to the polls in a unilateral declaration of democratic defiance, a “yes” vote could drag moderates into reckless confrontation.
Much has been said on the economic drawbacks which would occur were Catalonia to sever links with Spain. Yet, the mere possibility of that happening would hit the Spanish economy as a whole. It would amount to a lose-lose scenario for both parties.
Overall debt sustainability roughly 20% of GDP would evaporate. Ratings agency Fitch has placed the Catalonian question under special scrutiny because no one knows how the implications of an independence vote would play out.. Investors would also have serious doubts about Spain’s ability to repay its debt should it become deprived of one of its wealthiest regions.
Catalan independence would trigger disarray in financial markets . Fleeing to Madrid is unlikely to save banks from the ensuing hurricane. A sizeable part of their loans and deposits would be plunged into limbo, unless Madrid swiftly quells the rebellion or recognizes the “fait accompli” by offering full support for Euro arrangements.
A deep recession would likely hit Catalonia and also Spain, with investment plummeting and uncertainty driving business activity down. A nightmare scenario could ensue well before serious steps towards independence are taken. In a way, turning the economy into a shambles would be a glimpse of the unbearable costs such secession involves. Let’s hope citizens in Catalonia do not share St Thomas inclination for believing only in what he could touch or experience.