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Saturday 24 March 2018

Rush for independence could make UK's Brexit woes pale in comparison

Childhood friends David Jovellar (24), wearing an independence flag, and Almudena Chueco (23), wearing a Spanish flag, hug at a rally in Barcelona, Spain. Photo: PA
Childhood friends David Jovellar (24), wearing an independence flag, and Almudena Chueco (23), wearing a Spanish flag, hug at a rally in Barcelona, Spain. Photo: PA

Daniel Capurro

Catalonia, one of Spain's most prosperous regions, claims to be on the brink of unilaterally declaring independence. It's a wealthy and relatively cohesive society, with a global city and port in the form of Barcelona, and first-rate infrastructure. And, thanks to decades of substantial autonomy, it has most of the institutions that any independent state would need.

So independence should be a doddle, right? Well, maybe. It all depends on how it happens, and right now things don't look good.

First let's look at what an amiable and peaceful transition to independence might involve.

Imagine that, having come together this week, Madrid and Barcelona come to a compromise. A legitimate referendum is held in mid-2018, which, against the odds, the separatists win. A period of transition is negotiated, and the EU agrees to let Catalonia seamlessly become a new member nation without having to leave first. Finally, on September 11 (Catalan national day), 2020, it becomes an independent nation.

In this situation, things would probably go swimmingly. Catalonia is rich: Its GDP per capita is the fourth highest of Spain's regions, and comparable to that of France. From within the single market, and with excellent road, rail, and sea links to the rest of Europe, trade would likely continue uninterrupted.

Catalonia does have economic problems - youth unemployment, while low for Spain, is shockingly high at 34pc - but separatists would say that once unshackled from Spain they would be free to bring it down however they wished.

Beyond this, Generalitat, the regional government, already has responsibility for culture, education, health, justice, environment, communications, transportation, commerce, public safety and local governments, and runs Catalonia's independent police force "the mossos".

It would probably be possible for it to set up a central bank, a revenue service, and border controls, given time. For defence, it could become a strong advocate of EU armed forces or rely, like the tiny Baltic nations, on Nato.

So that's the amicable version. But of course that's probably not how things would go down.

The Generalitat is led by hardcore, lifelong separatists, intent on cleaving Catalonia from Spain within days no matter the consequences. And this is where things can, and likely will, go badly, badly wrong.

In the case of a unilateral declaration of independence, Madrid would likely try to suspend Catalan autonomy using article 155 of the Spanish constitution, and then perhaps force a new regional election. What happens if that fails and Catalonia succeeds in breaking away?

Catalonia has significant debts: €77bn, or 35.4pc of regional GDP. In a rough, sudden and dramatic departure from Spain, Catalonia may well struggle to gain any access to international debt markets, and thus lose the ability to renew its debt, forcing it to default. In addition, €52bn of its debt is owed to the Spanish government.

Would the Generalitat, in anger, default on that? Doing so would almost certainly shut Catalonia out from debt markets, if it hadn't been already.

Outside the EU, Catalonia would find itself facing hard borders with France and Spain, tariffs, and a lack of recognition for their regulations. Two-thirds of its exports go to the EU. Those might suddenly dry up.

If you think Britain is having a tough time negotiating its exit as the fifth largest economy in the world, spare a thought for the idea of Catalonia, which would be outside the world's 40 biggest economies. For comparison, it's smaller than Ireland's.

Then we come to currency. Catalonia naturally wants to keep the euro, but without official membership, it would join Ecuador, East Timor, El Salvador, the Marshall Islands, Micronesia, Palau, Turks and Caicos, the British Virgin Islands, and Zimbabwe as nations that don't use their own currency.

Spain has already given up control of interest rates to Frankfurt, but at least it has an input. Catalonia would not even be an afterthought to the ECB. And of course, Catalonia would not be able to print euros, and so would be reliant on trade for hard currency.

And if Catalonia's trade did collapse once it found itself outside the EU, then it might well suffer a serious hard currency crisis.

Beyond the economics, if Catalonia does declare independence by next week, the Generalitat will be dragging a lot of unwilling people with it.

Events this weekend may well have changed minds, but at the last count in July, support for independence was only at 40pc, and it dropped to 32pc when given the option of more autonomy.

On top of that, while Catalan identity is strong, the region has a multicultural society, and the Catalan language, so central to separatism, is only seen as "their own language" by 38pc of residents, compared to 45pc for Spanish.

All in all, a sudden and rapid sprint for independence is a recipe for a Catalan disaster, but the most ideological of nationalist might think it a price worth paying.

The question is: is the Generalitat mad enough to jump?(© Daily Telegraph London)

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