An Economic Case for Catalan Independence?

♠ Posted by Emmanuel at 9/14/2012 04:54:00 AM

Nothing stokes popular discontent like economic malaise, and Spain's current plight of enduring, among other things, borrowing costs characteristic of a third world country instead of a first world one is now the Catalan cause. Never fond of Spanish central government to begin with, the rallying cry for independence is in not being weighed down by that economically regressing nation:
For the first time, polls this year revealed that a majority of Catalans now want an independent state – a demand that will reach full voice on Tuesday in mass rallies marking the Diada, Catalonia’s national day, under the banner of “Catalonia: a new state in Europe”.

The critical date, however, falls the week after, when Artur Mas, the Catalan president, meets Mariano Rajoy, Spanish prime minister. Mr Mas, a mainstream nationalist from Mr Pujol’s Convergencia i Unio party, is seeking Madrid’s commitment to fiscal autonomy – the right of Catalonia to collects its own taxes, as the Basques do – the pledge upon which he was elected.
Almost no one believes Mr Rajoy’s centre-right Partido Popular government is either ideologically willing or fiscally able to concede this demand. Most analysts therefore anticipate an early Catalan election, probably in the spring, which will become a de facto referendum on independence.
A further argument is that if Catalunya had fiscal authority, it would not find itself in as bad a shape financially as it does now:
Catalans always accepted that as a relatively rich part of the country, they “needed in justice to contribute” to a central budget channelling resources to less developed regions such as Andalucia, says Mr Pujol. But they “fell into the solidarity trap”, and “this has led to the total abuse of our [fiscal] situation”, he argues.

Catalonia last month had to seek a €5bn rescue package from Madrid, which Cristobal Montoro, the Spanish finance minister, has indicated will come only with increased central control of its government. But the Catalans argue they could refinance their €42bn debt and manage their budget deficit – 3.9 per cent of GDP last year – if they could collect their own taxes and keep more of their revenue.
Alike many Eastern European nations still wanting in to the European Union, what I find remarkable is that Catalunya still wants to be an EU state. The mass protests last Tuesday for instance championed "Catalonia: A New European State." In so many words, the Catalans are more after fiscal autonomy from Spain than political autonomy from the European Union when you could of course argue that the problems besetting it stem from the latter at least as much as from the former.

Also consider that Catalunya would itself have to re-apply for EU membership and the idea of independence becomes even more far-fetched. Indeed, letting go of Spain may mean losing economies of scale and markets that outweigh any potential gains from fiscal autonomy:
Whether Catalonia would be viable as an independent state is an open question. Much of Catalonia's wealth comes from tourism, but there are major industries in the region, as well as a significant multinational presence. Whether these firms would want to remain in a small state that was not part of Spain is unclear.   

If the region continues to pursue independence, boycotts could follow, analysts warn. There was a damaging cava boycott in 2005, when Catalonia refused to back Madrid's bid for the 2012 Olympics. The economist Xavier Cuadras warned: "A large-scale boycott could cause a 40% drop in exports of consumer goods to Spain, and a sustained boycott could cost Catalonia 4% of its GDP." Spain accounts for 54% of the region's exports.
So no, I doubt whether this move is a sensible one even given Spain's current woes