Should There Be a Catalonian Nation Independent of Spain?: The Ramifications of Secession

Barcelona is a beautiful city known for its art and architecture. It is a city I would like to visit some day because it truly is a gem of Spain. Being located in the Spanish province of Catalonia (Cataluña), it is also in the middle of a political controversy. On October 1, the Catalonian people are to vote on whether or not Catalonia is to secede from Spain. The complication is that the Spanish government has declared the referendum for independence to be illegal. Catalonian independence dates back to the early 20th century when the Spanish government revived the Generalitat of Catalonia in 1932. This increased autonomy was quashed with the rise of dictator Francisco Franco. After Franco's death in 1975, the Catalonians focused on increased autonomy instead of an independent state. This changed in 2007 as a result of a fallout from the Great Recession. The main gripe: Catalonia has been paying more in taxes than it had been receiving in benefits. In a time where Brexit is taking place, it makes me wonder if Catalonia should secede. I do not want to get into whether or not Catalonia should hold a referendum. That is separate from the question I would like to answer: "Is it a good idea for Catalonia to separate from Spain and become its own country?" I asked a similar question three years ago when Scotland was looking to secede from the United Kingdom, and I will apply that general research methodology here to the Catalonian case study.

Economic Costs
Economics will play an important enough in the outcome of this election. The economic argument being used in support of Catalonian independence, which is being contested by some, is that it pays more in taxes than it does in expenditures, thereby creating a deficit. Catalonia receives 10 percent of federal funds while accounting for 16 percent of the Spanish population. Based on this cash-flow method, Catalonia is losing the equivalent of 8.5 percent of its GDP per annum, which is notable when its current debt-to-GDP ratio is 35.4 percent. Even if this money were to stay in Catalonia, there are multiple costs to the Catalonian economy, the first being that the services that the national government provide would have to be provided by the autonomous Catalonian government. This could very well reduce the benefits from 8.5 percent of the GDP to 4.2 percent, although the Generalitat of Catalunya estimates a rosier 5.8 percent (also see less rosier projections from the Societat Civil Catalana here).

Having an extra 4.2 or 5.8 percent of the GDP sounds like a nice win. However, this assumes that economic commerce resumes as normal after the secession. The big reason for that is because secession automatically means that Catalonia is ejected from the European Union. 65 percent of Catalonian exports are bought by the European Union. This is important because the European Union is a trade bloc. Being removed from that means paying tariffs, which diminishes the benefit of secession.

Much of that EU trade is with Spain: Catalonia conducts about half of its trade with Spain. Yes, France is Catalonia's largest exporter, but after that, Catalonia's biggest exporters are Andalucía, Aragón, and Valencia. Also, let us keep in mind that while Catalonia technically has a trade surplus, much of that surplus is with Spain. With the rest of the world, it runs a trade deficit of about 4 percent.

Considering that the Spanish government is already attempting to quash the referendum vote, it is unlikely that Spain is going play nice with Catalonia in the event of a secession. Spain's Economic Minister, Luis de Guindos, warns that Catalonia's GDP could drop by 30 percent. Why? There is great uncertainty as to how this will play out. The uncertainty would cause Catalonian households to consume less, which would damper the economy. When the costs and benefits are added up, a study from the University of Edinburgh actually found that disposable income would diminish by 3 percent (Comerford et al., 2014). There will most certainly be disinvestment and increased unemployment, both of which would diminish Catalonia's return. The reason for disinvestment is because many of the Catalonian businesses would prefer to stay in the Euro Zone, and would probably relocate to Spain.

Membership with the EU is not just about trade policy, but also monetary policy. Once Catalonia leaves, it would no longer be part of the Euro Zone. Sure, it could de facto use the euro, but it would be a country without a currency and have zero control over monetary policy. Its inability to receive financing from the European Central Bank (or Spain) would lead it to creating its own central bank and currency. Without an institutional history, its currency would probably be weak and its interest rates would be high.

Other Considerations

• According to a survey from Deloitte surveying business owners throughout Spain, 74 percent of Spanish business owners think independence will hurt the Spanish economy. 43 percent of Catalonian business owners feel the same way.
• Pluralism is one of those highly esteemed values, especially in a more democratic society. We get along with those around us in spite of our differences. Yes, the Catalonians have a distinct language with their own history and culture, but Catalonia somehow managed to maintain their heritage for over 400 years under the Spanish crown, as well as Franco's attempts to suppress Catalonian heritage. 
• While it is admittedly easier to maintain more homogenous countries, many developed countries have maintained multilingual nations, including Canada, Israel, India, and Switzerland, not to mention other countries that can harmoniously deal with a multicultural society. 
• The end-result of a secession greatly depends on the reaction of the country from which the separation is taking place. Catalonian separatists do not have the capacity or desperation to take on the Spanish army. Let's remember that in the not-so-distant past, the Spanish government was run by a far-Right Francoist military junta. Considering how important Catalonia is to Spain, the Spanish government using military might to quash the secession should not be dismissed outright. 
• Catalonian independence has other militaristic ramifications. If Catalonia leaves Spain, it loses protection under NATO, and there would be no guarantee that Catalonia would be offered protection under NATO. 
• According to Spanish think-tank Fundación Alternativas, this does not just affect its status with NATO. Independence also adversely affects its status with the United Nations, European Union, the International Monetary Fund (IMF), and the World Bank. Specifically with regards to the European Union, Catalonia could not get into the European Union without Spain's help because entry into the EU requires a unanimous vote.
• Per a 2012 European Commission report on regional governance, Spain ranked 13 out of 27 EU countries. More to the point, Catalonia ranked 130 out of 199 regions, and was the lowest-ranking Spanish region. The fact that corruption is more pervasive in Catalonia than it is throughout the rest of Spain indicates that the government would have a harder time performing and that the economy would not grow as well as anticipated. 

Conclusion: While Catalonia has a large and diverse enough of an economy to theoretically support its own statehood, the current dynamics would render a hypothetical secession a disaster both for Catalonia and Spain. Reforming the Spanish federal fiscal regime would be a much more prudent move than Catalonia leaving Spain. The people should be allowed to decide their own fate, but I nevertheless contend that the people of Catalonia should remain as a part of Spain.