The economy in the face of independence


In the current debate about the economic effects of Catalonia's potential independence, a distinction, that we consider to be useful, is usually made between the medium and long-term consequences, and the short-term transition costs.

There is no doubt that an independent Catalonia is completely viable. Its population is similar to that of countries like Denmark or Switzerland, its income level is higher than the EU average, it has a competitive and diversified economy, and its public administration is capable of governing the country from the onset. Our nation's independence would have positive economic effects in the medium and long term. It would eliminate a huge and persistent fiscal deficit that currently requires the Government of Catalonia to become indebted in order to cover its costs. It would allow the Government of Catalonia to make strategic decisions that affect the production potential and well-being of its citizens (such as infrastructures, education or taxes), which are key in order to move ahead in a globalized world and that, up until now, have been left unattended by a central government focused on other priorities and interests. In this scenario, the Government of Catalonia could pay for an earlier welfare state—especially pensions—with just as many or even more resources than the Spanish State.

Could the total cost of transitioning to an independent state be higher than the advantages of having a fully-recognized and operational state in the European Union and within the eurozone? If all the parties involved are politically willing, there is no objective reason that would hinder the de facto continuity of economic and financial relationships with the rest of Europe in all areas. Since a deliberate political decision aimed at interfering with this continuity would result in economic costs for everyone, we believe that the threats made by the Spanish State have little credibility.

In any case, these transition costs could be addressed in three major areas: a commercial boycott, EU membership, and keeping the euro. What is the potential economic impact of a commercial boycott? Catalonia sells nearly a fifth of its production to Spain. However, if we calculate the commercial effects of independence, four things must be considered. First, a boycott would have a much greater effect on consumer goods (which represent only a third of Catalonian exports) than on capital or intermediate goods. Second, it is hard to believe that goods from multinationals (40% of Catalonian manufacturing turnover) would be boycotted because it would be impossible to distinguish the origin. Third, the boycott would have serious effects on those who carry it out. And fourth, boycotted products could be resold (at lower prices or with higher costs) in other markets. Based on these factors, we calculate that the commercial effects of independence would be transitory and not likely to surpass 1% of Catalonia's GDP.

The Spanish Government has stressed that independence would result in automatic expulsion from the EU. This expulsion would involve formally recognizing Catalonia as a country, which is something that the Spanish State has vowed it will never do. In any case, EU treaties make no reference to being expelled from the EU if a new state is established by a region that forms part of the EU. In fact, article 50 of the treaties requires a negotiation process and the consensus of the parties involved in order to allow an EU member to leave the Union. Considering the amount of investments made by European companies, the decision on Catalonia's treatment will be political. EU decisions tend to be pragmatic and they strive to guarantee the continuity of the rights and obligations of European citizens, while maintaining economic and financial stability. In the recent crisis, certain basic policies of the European treaties (such as the "no bail out" clause or the "no monetization of government debt" rule) were violated in order to prevent the financial collapse of certain members.

As a sovereign nation, Catalonia could continue to use the euro (we have examples of countries that use another government's currency). To guarantee the continuity of the banking system's existing process for supervising and providing access to liquidity, a monetary agreement could be established like the one with Monaco or other microstates that are not members of the EU. In this case, it could be adjusted to Catalonia, since it adopted the euro as of when it was introduced and the region has shown its desire to form part of the Eurosystem as a member with full rights. Even without this agreement, solvent banks operating in Catalonia could obtain liquidity indirectly through parent companies or subsidiaries operating in the eurozone or in the global interbank market. Any suspension of payments of a bank that also operates outside of Catalonia would have a devastating effect on its reputation, and especially that of the banking group it forms part of, so guaranteeing the liquidity of its operations in Catalonia would be a top priority for that bank.

In summary, although the benefits of independence would be permanent, any transitory costs would be temporary and determined by how the Spanish State reacts. This means that the net balance of independence depends on the importance we give to our future and that of our children in the September 27th elections. Even if we value this future just a little, we believe that independence will be good for everyone.

- Link to the original article (LA VANGUARDIA)

- Link to the article - CAT (Assemblea/Gironès)

Col·lectiu Wilson

Pol Antràs (Ph.D., MIT) Professor at Harvard University
Carles Boix (Ph.D., Harvard) Professor at Princeton University
Jordi Galí (Ph.D., MIT) Senior Researcher at the Center for Research in International Economics (CREI)
Gerard Padró i Miquel (Ph.D., MIT) Professor at the London School of Economics
Xavier Sala i Martín (Ph.D., Harvard) Professor at Columbia University
Jaume Ventura (Ph.D., Harvard), Senior Researcher at the Center for Research in International Economics (CREI)

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