Spain warns Catalonia faces 'brutal' impoverishment

Catalonia would suffer “brutal” impoverishment if it splits from Spain, with a deep plunge in its economic output, Spain’s economy minister warned today ahead of a disputed independence referendum in the region.

“The general impoverishment of the society would be brutal. GDP could fall between 25 and 30 per cent and unemployment double,” Economy Minister Luis de Guindos said in an interview with radio Cope.

An independent Catalonia would find itself outside of the eurozone so 75 per cent of its products would be slapped with tarifs, banks would have to relocate, and the region would have to set up its own currency, he added.

“The independence of Catalonia would be absolutely irrational from an economic point of view,” the minister said.

Catalonia, which accounts for a fifth of Spain’s economy and is roughly the size of Belgium, is slated to hold an independence referendum on October 1, which Madrid and Spanish courts have declared illegal.

The referendum has not had an impact on the economy because financial markets do not think Catalan independence is a “minimally viable and acceptable scenario”, the economy minister said.

Catalonia’s pro-secession regional government argues that an independent Catalonia would be able to decide its own fiscal policy and investments, which would boost its GDP.

It says Catalonia currently pays billions more in taxes to Madrid each year than it gets back in investments and services but this would end if the region split from Spain.

The Catalan government estimates it pays €16 billion (RM80 billion) more to Madrid than it gets back, or about 8.0 per cent of it the region’s GDP.

Spain’s central government, which uses a different calculation, puts the figure at around €10 billion, or 5.0 per cent of Catalonia’s economic output.

Catalonia, home to around 7.5 million people, is tied with Madrid for the title of Spain’s richest region.

Its unemployment rate stood at 13.2 per cent in the second quarter, lower than the 17.2 per cent rate posted for all of Spain

Source: AFP