The referendum on the independence of Catalonia has plunged Spain into a serious state crisis, the outcome of which so far is completely open. In addition to the territorial consequences, there is also the question of the future of Catalonia-based companies, for which an exit of Catalonia from the Spanish state, and thus from the EU and the Eurozone, could have dramatic consequences.
Catastrophic consequences for the economy of Catalonia
One of the main arguments in favour of a separation of Catalonia from Spain is the region's economic strength. Catalonia is Spain's strongest economic region, accounting for around 19% of Spain's GDP. The share of gross domestic product also explains why the government in Madrid cannot under any circumstances agree to a secession. Despite the high economic output, Catalonia is also Spain's most indebted region. This circumstance, and the fact that Catalonia would almost immediately lose membership of the EU and the Eurozone with the declaration of independence, makes it unlikely that the new state will survive without outside assistance.
A closer eye on the composition of the economy reveals the difficulties faced by independent Catalonia. A large part of the industry is located in the chemical and pharmaceutical industry. Other parts belong to the textile and automotive industries. The biggest difficulty that arises from the catalan independence for industrial companies is, that they are to a large extent external suppliers. However, the latter is largely dependent on the export of its products. If membership of the European Union were to be abolished, all companies that rely on exports, including of course exports to the rest of Spain, would be faced with massive problems, as their goods would then have to undergo the customary customs procedure. This is not only a considerable effort, but also a considerable expense for exporters. Taking into account the fact that many goods are delivered "just in time" and that, at least in the first few months after the declaration of independence, there may be enormous delays in delivery, the consequences for the companies concerned can be foreseen.
Since it is quite possible for Catalan suppliers' customers to experience a decline in turnover, if they should not receive the materials they need in the usual way, and these may even become more expensive due to the cost of customs clearance, it can be expected that they will look for other suppliers, and in many cases they will not purchase any or less goods from Catalonia. How likely this is can be seen from the fact that many companies have already left Catalonia in the past 12 months to other Spanish regions.
Tourism is also one of the most important factors for the Catalan economy. The Costa Brava and Costa Daurada are among the most popular Spanish holiday destinations. This applies to foreign tourists, but also to a large extent to Spaniards who spend their holidays on the Spanish coast. First of all, it is to be expected that Spanish visitors in particular will not be willing to visit an independent Catalonia. But the number of visitors from outside the EU could also drop sharply. This applies not only to package tours, but also to many holidaymakers who travel by car, caravan or camper van and now have to endure annoying customs checks.
Spanish financials already under strong pressure
Already on Wednesday, Spanish financial stocks came under heavy market pressure. While the indices on the European stock exchanges recorded some record levels on this day, the Spanish benchmark index Ibex fell by around -2%. The biggest losers are the stocks of Barcelona-based financial institutions, such as Banco Sabadell with -5% and Caixabank with -4%.
The situation on the financial markets is unlikely to improve after Catalan Prime Minister Carles Puigdemont called on the Madrid government to negotiate, but at the same time emphasised that he insisted on adhering to the plans to declare independence, and the Spanish central government refused to negotiate at all. So the signs are still pointing to storm, and it seems that it is only a matter of time before investors panic and they are leaving Spanish stocks on a massive scale. The first effects of the uncertainty are already being felt today in Spanish government bonds, for which risk premiums on Wednesday rose sharply in comparison with German government bonds.
