EU: AUTOMATIC EXIT FOR CATALONIA? RATHER AUTOMATIC DEFAULT FOR SPAIN

By Alex Calvo

Some voices in Spain seem very happy to have got the European Commission to say that Catalan independence would mean automatic exit from the European Union. Leaving aside whether that would necessarily be bad, and rest assured the arguments to leave behind the EU are many, as clear in the UK debate, let us briefly look at whether this position is tenable. What would happen if Catalonia, following a referendum or a declaration of independence, was excluded from the EU?

1.- Spanish default. Madrid is struggling with a national debt equivalent to 100% of her GDP. Is anybody seriously saying that they could cope with 125%? That is the ratio once Catalonia leaves, unless she takes over a share. Needless to say, the quid pro quo would be automatic recognition by Spain and Brussels. An alternative would be other countries picking up the bill, but it is doubtful British or Northern European taxpayers would be ready to do so, since they are already protesting at the cost of bailing out Spain.

2.- 52% of Spanish trucks travel through Catalonia to reach the European Union. Catalans have no intention to interfere with Spanish foreign trade, but should the country be excluded from the EU then she would regrettably be forced to inspect them. Twice, on entering and on leaving Catalan territory. On top of that, French authorities would also have to inspect them. While neither Barcelona nor Paris would be trying to damage the Spanish economy, the resulting negative impact on Spanish exports would be clear.

Therefore, it is time for everybody involved, for all parties, to stop fooling themselves. Time to stop issuing threats and instead think rationally. Excluding Catalonia from the EU would mean Spain defaulting, and bringing down the euro with her. It would also mean an end to the recent improvement in her balance of trade. Nobody wants that, nobody at all, for the simple reason that it is in nobody’s interest, and least of all in that of Madrid’s creditors. A Spanish default would not benefit anybody. If, despite this, any country, investor, or institution is ready to deal with a Spanish sovereign default, let them speak out now, and do so openly. It is therefore clear that Catalonia is and will remain part of the European Union, unless she wishes to leave out of her own volition, and that she will be immediately recognized by everybody, Madrid included, because (and this is no threat, it is pure logic) Catalonia cannot take over her share of the Spanish national debt unless recognized. The reason is obvious: if a country does not see Catalonia as having left Spain, she cannot ask Barcelona take a share of Madrid’s debts. Any reluctant politician would soon be overwhelmed by calls from voters and (more importantly) bankers and investors demanding recognition, just to make sure they get their money back. Spanish bond holders do not really care about Catalan independence or Spanish national unity, but they do sure care about getting their money back, on time and with interest.

Alex Calvo is an expert in security and defence in Asia-Pacific

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