A Catalan breakaway would make Brexit look like a cake walk
Exiting the EU and currency union at the same time is an economic suicide mission
Catalonia remembered a grim anniversary on Friday. On October 6 1934, the then autonomous Catalan government staged an insurrection and proclaimed independence. It ended with the imprisonment of members of the Catalan government and the suspension of the statute of autonomy. We are not quite at that point today, but we are not far from it. Carles Puigdemont, the Catalan leader, has decided to respect last week’s ban by Spain’s Constitutional Court on Monday’s session of the Catalan parliament, which was scheduled to declare independence. A session on Tuesday will have no such official agenda. Mariano Rajoy, Spain’s prime minister, has said his government may invoke Article 155 of the Spanish constitution to withdraw Catalonia’s autonomy, bringing the region under direct control of Spain. This clearly has the potential to provoke a general insurrection and possibly violent conflict. The Spanish government’s handling of the crisis has triggered a backlash in Catalonia and abroad, where people reacted with horror at pictures of police violence against voters. Catalonia was not on the radar of many international observers. It is also one of the least understood places in Europe. I take no sides as to whether Catalonia is right, or wise, to seek independence. I can think of strong reasons to oppose it. Whether these are sufficient is for the Catalans to decide. What makes Catalan independence much worse than the most extreme version of Brexit is the immediate forced exit from the eurozone The main argument against independence is economic. Independence would constitute a shock of an order of magnitude larger than the hardest of Brexits. It is the legal opinion of all EU institutions that regions that declare independence do not automatically become members of the union. The separatist argument is that the EU could ill-afford to lose a wealthy region that would rank 15th by population among member states. The EU does not want to Catalonia to leave, but it can also not act against Spain. Independence really means third-country status — Catalexit. In that case, Catalan citizens would lose their Spanish and EU citizenship because that privilege exists only in conjunction with the citizenship of a member state. The Catalan version of having your cake and eating it is to hope for dual citizenship. I think this is utterly unrealistic. The border between Spain and Catalonia would become a heavily guarded external border of the EU and the Schengen zone of passport-free travel. Catalans would have to apply for visas if they want travel to Spain or the EU. As a non-member of the World Trade Organization, Catalonia would have no automatic right to reduced WTO tariffs. What makes Catalan independence much worse than the most extreme version of Brexit is the immediate forced exit from the eurozone. Catalexit would constitute a dramatic sudden return of the eurozone crisis. The banking system in one of the world’s wealthiest regions could collapse. This is why two Catalan banks decided last week to shift headquarters to Spain. They want to ensure continued access to funding by the European Central Bank and the Bank of Spain. Catalonia could, in theory, emulate the example of Montenegro, and unilaterally adopt the euro as its currency. But Montenegro is a tiny country with gross domestic product of just over €3bn. Catalonia’s GDP was €224bn last year, larger than Portugal’s. Catalonia is also unprepared to introduce its own currency on independence day. It would be mad to try to run such a large developed economy without a central banking infrastructure. Extricating yourself from the EU is difficult enough, as we can see with the UK. To extricate yourself from a currency union at the same time is an economic suicide mission. The single strongest argument against Catalan independence at this stage is an utter lack of preparation. I would go further and argue that the presence of a monetary union makes a regional independence movement impossible. We know that at least one-third of the Catalan electorate are pro-unionists. More might join their ranks when they realise the threat of economic perdition, especially if it became clear that the EU is not bluffing. The worst option of all is to use force to prevent independence. This strengthens the separatists, and risks bringing about the economic calamity Spain, Catalonia and the EU should all seek to avoid.
