Type: Research Essays
Sample donated: Henry Norton
Last updated: September 15, 2019
Catalonia is wealthiest region, andhas a long shared history with Spain (BBC, 2017). In 2017, Spain’s GDP was$1.232 trillion with GDP per capita of $26,528.49 (Statistic, 2017). After thesuccession, Spain will face a minor recession in their GDP due to the loss ofCatalan’s contribution. The recession will cause the unemployment rate toincrease and face uncertainty from investors due to the loss of majorindustrial region of Spain (Ross, 2017).
Causing the government to makecyclical deficit as they continue to pull the economy out of its minorrecession. Due to the decrease of supply of goods in the market, the demandwould increase causing inflation that could further cause the economy to movefurther in recession. Factors such as GDP, GDP per capita, growth rate,inflation and unemployment would negatively affect the standard of living ofSpain’s population. However, Spain has international support from its alliesand government structure to make a fast recovery from the recession.
Accordingto the 2016 projections, IMF (international monetary fund) estimates thatSpanish GDP will expand by 3.1% in the beginning of 2018; due to the servicesand newly competitive export sectors (Khan, 2017) (refer to Appendix B). Incontrast to Spain, Catalonia will face long term economic impacts of theseparation. Similar to other region, it is dependent on Spain’s economicstructures and relations (refer to Appendix A). Catalonia has a GDP of $255.20billion with GDP per capita of $33,580 as of 2017(World Bank, 2017) (refer toAppendix C). In comparison to the other regions of Spain, Catalonia generates€200 billion investments that is equivalent to 20% of Spain’s GDP (Henley,2017)(refer to Appendix A). It is a major business hub within Spain andgenerates its majority of revenue through foreign investments, trade firms andbanking corporation.
As the crisis escalates the investors are losing theirtrust and have become uncertain due to the movement and political turmoil. On 6October 2017, Banco de Sabadell, the second largest bank in Catalonia moved itslegal headquarter from Barcelona to Madrid (Khan, 2017). Due to the withdrawalof large corporations such as banks and trading firms from Catalonia, theunemployment rate will increase at a higher percentage. This will lead to thefall of GDP by one-fifth, resulting in lower GDP per capita (Bosch, 2017).Furthermore, Catalonia secessionist claim that Catalan pay majority of theirrevenue in tax to the central government of Spain but does not receive from thecentral government for government spending, security and infrastructures. JPMorgan’s research report on Catalonia crisis uses 2005 allocations ofgovernment spending done by Spain for its regions (2012). In total Spain spent€133 billion dollars and equally shared the amount allocated to the regionsbased on the proportion (White, 2012).
Catalonia received €21.5 billion by thecentral government for social services, infrastructure and security (White andAguree, 2012) (refer to Appendix E). According to the Luis de Guindos, Ministerof economy, the necessary amount that Catalonia will have to invest for itspublic will be equivalent to 5.8 % of Catalan’s GDP (2017). Furthermore,expenses for border security, infrastructure, government spending, educationand economic development will not be sufficient leading to increase tax rates,inflation and low standards of living for Catalonian.
As Spain will no longerbe liable to help Catalonia for financial assistance. Similar to Spain, EU isno longer liable to help Catalonia as it is not a member of EU, Europeancentral bank (ECB) or Stability mechanism (ESM). With its increasingunemployment rate, business relocating their headquarters to other regions ofSpain and decrease in disposable income, it can be foreshadowed that Cataloniawill face difficulties attracting foreign investments (Petroff and Riley,2017). This further complicates as Catalonia will not be able to use euro astheir currency.
There are nation that use euro as their currency but are notmembers of European Union, this is possible due to a monetary agreement betweenthe nations and EU (European Commission, 2017). Catalonia and European Union donot have such formal agreement that allows Catalonia to use euro as theircurrency. The uncertainty that surrounds Catalonia after its succession withdecrease GDP, rising unemployment rate, inflation and low standards of livingfor its citizen are factors that provide evidence as to why Catalonia shouldremain part of the Spain (Economist, 2017).