It’s no secret that Catalonia, whose capital is Barcelona, has been considering breaking away from Spain and going it alone. And certainly the movement has gained impetus after Scotland’s vote on leaving the U.K.
However, the discussion has taken on new and troubling overtones since a nonbinding vote on the issue in Catalonia on Nov. 9. While popular opinion appears to come down increasingly on the side of independence, providing a corresponding increase in popularity for Catalan President Artur Mas, who presided over the vote, Catalonia—and Mas—have other troubles. Mas is not popular at all with the government in Madrid, which appears to be squaring up for a fight over the matter.
When the Spanish constitutional court declared the originally scheduled binding referendum illegal, Mas and Catalan independence supporters decided to proceed instead with a nonbinding vote. The constitutional court then declared even that was illegal, and ordered that it be postponed until the issue could be further examined.
But the vote proceeded, with 2.3 million people voting out of a total Catalan population of 7.4 million. And 80% of those voters supported a move to independence.
At stake, along with the issue of greater overall autonomy, is Catalonia’s control—or current lack thereof—over taxation. Both the Basque region, which has been agitating for decades for its own independence, and the region of Navarre have considerable autonomy over the setting and collection of taxes, and are permitted to keep most of the taxes they collect.
But Catalonia, the second most populous region in the country, as well as the wealthiest—it is home to some of Spain’s largest companies, and accounts for 193 billion euros ($241 billion), or about 20% of Spain’s GDP—does not.
Spain’s central government is firmly opposed to independence for Catalonia. Since the nonbinding vote, Spanish Prime Minister Mariano Rajoy solicited the help of the attorney general’s office to determine whether any crimes were committed when the vote proceeded against the constitutional court’s orders. As a result, Spanish prosecutors have charged Mas with disobedience, perverting the course of justice, misuse of public funds and abuse of power.
That, however, has only increased the independence fervor in Catalonia—which could have a detrimental effect on the Spanish economy as a whole, and wider implications for the European economy should the region decide to go it alone. In fact, pro-secession party Esquerra Republicana is hoping to convince Mas to lay out a path to independence that would allow Catalonia to take over control of tax collection in the region in 2015, with full independence within two years.
Fitch Ratings has analyzed three potential scenarios for how the economics of Catalonia’s quest for independence could play out. They range from negative ratings that would result from outright separation to potential positive ratings from greater autonomy in the region.
Fitch said in its report that over the medium term, up to the end of 2016, devolution is the most likely scenario, with “the central government and Catalonia negotiat[ing] further economic devolution. The precedents for this are the Basque Country and Navarre, which have large tax-setting powers and keep most of the tax they collect.”