Catalonia could be an extremely successful economy and EU member state

In terms of population, location and percentage of GDP, Catalonia has lots to offer

Hamish McRae
Saturday 28 October 2017 21:17
Sacked separatist leader Carles Puigdemont calls for peaceful resistance to Spain

It is not for foreign economists to take positions on the independence of Catalonia, for that is for the people of Catalonia and Spain to decide. What can be said, though, is that if Catalonia were to become a fully independent country there is no reason why it should not – after a period of disruption – be an extremely successful economy.

There are a number of reasons why this is likely to be so. For a start, it has a population of 7.5 million. There is no right or wrong size as such, for there are successful countries that are very small: Luxembourg, with a population of just under 600,000, is the richest country in the world in terms of GDP per person. (Monaco probably comes in higher, but it is a special case.) And of course the three largest countries in terms of population – China, India and the US – are also success stories in their own ways.

But there does seem to be a sweet spot in the 5 million to 15 million bracket, where countries are big enough to offer their citizens a full range of services but are also small enough to be socially cohesive. This includes Ireland, Norway, Sweden, Denmark and Switzerland. Catalonia would naturally join that group.

Catalonia Spain PM Rajoy asks Senate for powers to depose Catalan president Puigdemont

That argument leads to a second condition for success: location. Countries cannot choose their location, and have to make the best of what they have. But if your neighbours are doing well, unless you deliberately cut yourself off from them, you will tend to be pulled along too. Catalonia, in that sense, is lucky in several ways. It has prosperous neighbours, France and the rest of Spain (though relations with the latter would be difficult for a while). It has a coastline, and a Mediterranean one at that. Barcelona and Tarragona, a little to the south, are Spain’s two largest ports.

Third, it has an established economic base. It is a manufacturing centre, has two top-ranking business schools, and the usual array of service industries. Separatists have noted that though Catalonia has about 18 per cent of Spain’s population, it generates more than 20 per cent of its GDP. Were it to be fully independent, with Barcelona and its 1.6 million people, it would have one of the glitziest capital cities on earth.

A final point: Catalonia has brand recognition. Brand is an intangible advantage, but can be deployed to leverage other economic advantages. Ireland is a fine example of that, using its brand (and its educated workforce) to make it a base for high-tech American companies seeking to enter the European market. On its own, Catalonia could be nimble in attracting business, and consequently creating jobs, than it has been as part of Spain.

But these advantages are general ones, formidable in the medium and long run, but less helpful in the short. To get from here to there is difficult, and political disruption leads to economic disruption. Unlike the separation of the Czech Republic and Slovakia, if this is to be a divorce, it will not be a velvet one.

There are a string of practical questions. What currency would Catalonia use? It would probably have to establish its own, as it would be difficult to continue to use the euro, even informally. In the long run, a separate currency might well to be the country’s benefit, for the inflexibility that the euro has imposed on Spain is one of the reasons why it has such high unemployment. But in the immediate days and months after independence, this would be very disruptive. It would be difficult for the banks based there, some of which have said they would relocate their legal headquarters. It would also be difficult for business and tourism.

My guess is that an independent Catalonia would be welcomed into the EU if it still wanted to rejoin, but that could take a decade. In the meantime we are seeing hostility from the EU. As for the other major countries, while their present stance of not recognising Catalonia is quite understandable and correct, if and when the country became truly independent, they have no option but to accept reality. But – and this is important – there is a considerable economic cost to political disruption on this scale.

The call for calm by Catalonia’s sacked leader Carles Puigdemont is sensible and strikes a helpful tone. Let’s see what happens. But if the end does turn out to be a new European country, then in another decade it is likely to be a prosperous one.

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