An independent Catalan may be bigger headache for EU than Brexit
The recent independence referendum in Catalonia could prove to be a bigger headache for the European Union than the UK's withdrawal from the bloc. The Spanish government said the recent vote was illegal and has previously stated that, should the region achieve independence, it would lobby for it to be refused entry to the EU - leaving the European community on the horns of a political and economic dilemma.
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It is essentially a political story, but with an economic twist. On Sunday the Catalan people vote on independence from Spain, despite the referendum being ruled illegal by the Spanish courts and despite practical efforts by the authorities to block entry to the polling stations. We don’t know how the day will pan out but we do know that whatever happens there will be consequences not just for Spain but for the European Union.

For most of us, Catalonia is Barcelona, the glittering planned capital, host of the Olympics in 1992, the event that brought the city to the world stage, and home to the Sagrada Familia, Antoni Gaudi’s huge and still unfinished cathedral.

Actually it is much more. The region is an economic powerhouse, in effect subsidising the rest of the country. Its 7.5 million people, some 16 per cent of the population of Spain, generate nearly 20 per cent of the country’s GDP. Were it a country it would rank in economic size somewhere between Denmark and Finland. As for Barcelona itself, its port is the biggest in the Mediterranean, and the fourth largest cruise ship destination in the world. It also has two of the top business schools in the world, ESADE and IESE, and a tradition of business competence.

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Catalonia attracts one third of inward investment into Spain, and produces one third of Spain’s exports.

Without Catalonia, Spain would continue to be the fourth largest economy in the eurozone, after Germany, France and Italy, but it would be much weakened. By contrast Scotland’s share of UK GDP is 7.5 per cent, so in economic terms this is a much bigger deal for Spain than Scottish independence would be for the UK. You can see why they oppose a referendum.

But what about the EU? Here the Spanish government has made it clear that were Catalonia to become independent, it would resist it remaining a member of the EU. This would be most unpopular in Catalonia, which would want, among other things, to retain the euro.

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Legally, Spain would be able to push an independent Catalonia out, but in the real world of European politics it would be hard for the rest of Europe to exclude a country that wanted to remain a member – or to be technically more correct, to rejoin. In economic terms Catalonia will be fully viable and there is no practical reason why it should not continue to use the euro, even if technically it were for a time outside the EU.

The obvious big question really is not so much the outcome of the referendum but whether Spain and Catalonia can rebuild their relationship. If they cannot do so, then Catalonia becomes a threat not just to Spain but to the EU as a whole, in some ways a greater threat than the departure of the UK. One of the lessons of the past couple of years is not just that politics have become unpredictable; it is also the economic consequences of a political event are unpredictable too. By rights the decision or non-decision of 7.5 million people ought not to unsettle Europe. But a week from now it may look very different.