+34 677 430 217 wha@whadvisers.com

The juggernaut of Catalan independence rolls on. Should international companies with business in Catalonia be worried?

Take a look at the official web-site of the pro-secession Junts pel sí (Together for Yes) electoral platform, and you’ll come across a stack of arguments to justify Catalan independence.   It paints a country which, freed from the shackles and financial burden of belonging to Spain, would be a model of growth, with world class infrastructure, education and health systems and generous pensions – a kind of Denmark on the Med.   All this would be paid for with the money that would no longer be handed over to the rest of Spain.

If it all sounds too good to be true, that’s probably because it is.  Things would not be quite so easy.  To start with, it is not clear that Junts pel si and the CUP will be able to deliver independence to their supporters.   And if they do, the economic outcome will be very different from what they have promised.


Six weeks on from the ‘plebiscite’ elections, Catalonia still has no Government.   Artur Mas, the former Catalan president and the Junts pel sí candidate – has yet to convince the anti-capitalist and fiercely pro-independence CUP to support him for President.  He has until 10th January to do so, otherwise new elections will be called.  Nobody among the secessionist groups wants that, so an agreement is likely.   Meanwhile, the process continues and last week the newly formed parliament passed a resolution announcing the start of a unilateral process of ‘disconnection’ from Spain.

This is a brazen challenge to Spain’s Constitution.  The Spanish Government’s starting point for its defence has been the Constitutional Court, which has provisionally ‘suspended’ the resolution from the Catalan parliament.  The text specifically encourages the Catalan executive to disobey any sentence from the court, so we can expect the Court’s ruling to be ignored. The Central government can then do several things – among them, banning officials from office, cutting off finance to the Catalan Government, and ultimately suspending the autonomy and imposing rule from Madrid.

Prime Minister Rajoy assures the country that all this will come to nothing.   But what if he’s wrong?   If the independence movement gets its way, the economic impact on Catalonia and the rest of Spain would be huge.  Should you then be worried about your business in Catalonia?

The short answer is yes.

Without entering into the rights or wrongs of not allowing Catalonia to have a referendum, the current process is a unilateral act of defiance, and that fact would condition the aftermath.    In last year’s Scottish campaign, the opposing sides disagreed wildly on the economic consequences of independence, but in the knowledge that the referendum was legal and that any separation would be negotiated.  That’s not the scenario here; the Catalan independence project is effectively a coup d’état, and that would set the tone for what happens next.

There’s another legitimacy question.   The pro-independence parties (junts pel si plus the CUP) polled less than 48% of the vote in the September elections.   That is a meagre mandate for such an irreversible decision.  Catalonia is deeply divided; the secessionist block is much more vocal, but the two sides are roughly equal in numbers, and passions on both sides run high.

In this scenario it’s difficult to imagine Catalonia garnering support from Governments around the world, and a permanent state of conflict with Spain would be inevitable.

Junts pel sí maintains that once independence is a reality, it would not be in Spain’s interest to play hardball with its new neighbour.  Maybe, but bloody divorces do not usually engender rational decisions.  Talking down Spain has been a big part of the campaign and “Spain robs us” is an ever present slogan for the independence movement.  Effective as it may be for whipping up support, it is not calculated to create a climate of goodwill in the rest of Spain.



“but it ain’t Denmark either….”


So a new Catalonia would start off as a divided society and with a largely hostile, and much bigger, neighbour.    And it may not take long for the Catalans to discover that the promised economic benefits promised are elusive.  For a start the numbers quoted in the Junts pel si campaign for the costs of belonging to Spain are exaggerated.  That means the savings from separation would be much less than announced.

An independent Catalonia would no longer be part of the European Union.   The secessionists argue that it is not in the EU’s interest to lose a wealthy economy of over 7 million inhabitants.   But leaving Spain means walking away from the EU, and the EU has no incentive to encourage other regions with separatist ambitions.

Being out of the European Union would hurt the economy.  Opinions are divided as to whether Catalonia could continue to use the Euro.  Were it to be forced to introduce a new currency, it would struggle to hold its value and the region’s Euro denominated debt would grow.  Investors could see the value of their Catalan-based holdings slashed.

Banks based in Catalonia would lose access to European Central Bank liquidity funding.  Their customers in the rest of Spain would worry about how their deposits are guaranteed.   With deposits running away and no ECB support, banks like Caixabank and Banc Sabadell would have to execute contingency plans and move their head office, leaving Catalonia with no big banks.

Catalan farmers would no longer receive subsidies from the EU.  Money for employment policies or infrastructure spending would dry up.

Finance would be one of the biggest headaches.  Ironically, Catalonia is the autonomous region which most relies on the central government’s finance line for the Autonomies.   Bonds issued by the Catalan government are almost entirely bought by the central Government’s liquidity fund as they mature.  With Catalan debt already rated as junk, the country would struggle to get funding.

Exports to the rest of Spain and the UE might all have tariffs slapped on them, further reducing competitiveness.   And should things come to a head, the extent of a Spanish consumer backlash should not be underestimated.

Then there’s delocalisation.   For the past few years Catalonia has already seen a net outflow of companies moving to other parts of Spain.  This would accelerate with independence.  Several big Catalan groups have announced plans to move their head office; others haven’t waited.  Foreign multinationals and Catalan companies alike will be worried about access for their ‘made in Catalonia` goods to all markets, as bilateral treaties negotiated by the EU would no longer apply.  Jobs lost as companies flee would be hard to replace.

International companies will also worry about the political climate in the new country.   The part of Junts pel si that is not Convergencia – the Republican Left – is far from business friendly, while the CUP is just plain hostile.


Mas and other pro-independence leaders frequently allude to the Nordic countries as a model, claiming that Catalonia would be “at the same level as Denmark or Austria”.   Yet the actual level of public services and social benefits, which for decades have been the responsibility of the autonomous Governments in Barcelona, together with deep-seated corruption, make the comparison seem preposterous.

There’s also uncertainty about what independence means.  Many supporters have argued that Catalans will maintain Spanish nationality, as it is a (Spanish) constitutional right.  That’s the same constitution they want to trash.  Others don’t see why their football teams – including Barcelona – couldn’t continue to play in the Spanish league.  But neither the Spanish league nor its tax authorities could allow clubs to play without having full legal and fiscal jurisdiction over them.  Messi and co won’t hang around for long playing the likes of Cornellá or Reus Esportiu every week.


The rest of Spain would suffer too.   Its GDP would be 20% smaller overnight; at the very least, a psychological blow.  On everyone’s mind would be how to restrain Basque aspirations, and whether regions such as Galicia or Canary Islands could join in the rush.  Spain’s economy will be worse off as the country grapples with the uncertainty.

Despite all this, markets have remained surprisingly calm – so far.   This is probably because investors just don’t believe it will happen.  Many international companies will be betting on that, even as they make contingency plans.   It’s not an unreasonable hypothesis to assume the law will be upheld.   Yet it’s hard to imagine many international investors planning to invest in a new Catalan factory, and that will affect growth in the region, whatever the outcome.  And should the plan succeed, expect a deep and long downturn in Catalonia.


What if a legal referendum were to be held, with a victory for yes?   Many of the negative economic effects would still come into play, but at least it would allow a degree of cooperation, with the rest of Spain and with the EU, that would soften some of the pain.  But with only the far-left Podemos showing sympathy, a referendum still looks like a distant option.

Spain is the Eurozone’s 4th biggest economy, and has much going for it.  If future Administrations govern sensibly, the Spanish economy has huge opportunities, and Spain – including Catalonia – is one of the best places to live in the world.   Investors need to keep an eye on what’s happening, but shouldn’t take fright.

Many international companies in Spain will be hoping that the immediate independence threat is averted.   But once that is done, the country will have to look to the future and decide how to keep its territory intact, if that is what it wants.    The Spanish Constitution is based on “the indissoluble unity of the Spanish Nation”.  What would really benefit the whole of Spain is if its future governments got on with complying with another couple of clauses in the constitution – the ones which guarantee the right of all Spaniards to a job and to a decent home.