Catalonia voted for independence over the weekend. Preliminary results for yesterday’s vote show that an overwhelming majority of the region’s inhabitants want autonomy from the rest of Spain, with around 90% of those who turned up voting for independence. Out of the 5.5 million people who were eligible, 2.3 million turned up to vote. If we put the reaction from Spanish authorities and the police to one side, it’s clear that Catalonia has taken a big step forwards after years of discussions and making their will known. So, what’s next?
It’s highly doubtful that Catalonia will actually become autonomous since it’s a donor region to the rest of Spain; contributing to around 20% of the country’s GDP. Madrid, for example, is only second on this list. Catalonia is a region with a large tourism industry and a strong export market. Separating this important cultural hub from the rest of Spain would noticeably damage the touristic appeal of other parts of the country. Also, don’t forget about taxes. Catalonia is significantly wealthier than its neighbouring regions, so were it lo leave, these regions would lose the support they enjoyed form tax revenue redistribution.
All of this aside, there’s also the question of the Eurozone’s stability. In defining Catalonia’s autonomy, the question of Eurozone membership is an essential one, which poses a real threat to the integrity of all European economies.
Maintaining Spain’s territorial integrity will prevent any serious economic or financial turmoil, so Spanish authorities will now do everything they can to prevent this result from being implemented. There will likely be arguments that Catalonian autonomy would do harm to the region, such as for example, decreased accessibility for tourists, which would result in less sustainable production in Murcia and the surrounding regions.
The euro is declining against the dollar this morning, although trading volume is rather low. On Monday, much will depend on how the international community reacts to this news and what first steps the Spanish government will take. If proponents of independence remain resolute and Spanish authorities take an aggressive stance, the euro should fall below 1.1735. I don’t think we should expect a serious drop for the euro in connection with this result yet, although if the situation gets out of control (as it well could), the euro/dollar will lose ground very quickly.