The State of Play
The violence in Catalonia last Sunday as the Spanish police and Guardia Civil tried to shut down an unauthorised independence referendum sent shockwaves across Europe and beyond, although the full political and economic effect is probably yet to be felt.
Responses from political leaders were initially muted. It was not until Monday that the EU weighed in on the issue, coming down firmly on the side of Madrid, despite the pro-EU sentiments of many Catalans. Vice-president of the European Parliament Ramón Luis Valcárcel tweeted that the vote represented “a nationalistic coup against Europe”.
While it’s too early to tell whether Spain has succeeded in thwarting Catalans’ desire for sovereignty, investors are already looking to the future, analysing the possible outcomes for industry, the markets and the property market.
If the Catalans achieve independence, refuse to assume their share of Spain’s national debt and win the freedom to determine monetary policy, the province could, like a post-Brexit UK, become something of a tax haven. This would almost certainly increase foreign investment, which grew 20.6% in the first half of this year 1,571.9 million euros, Catalonia’s second-best H1 on record.
The most prosperous of Spain’s 17 regions, it accounts for around 20 percent of the national economy – some 223.6 billion euros – with tourism and manufacturing the twin drivers of growth. Almost a third of foreign companies, including auto giants Volkswagen and Nissan, choose Barcelona as their base when establishing operations in Spain and Catalonia claims 35.5% of the total national figure for industrial manufacturing foreign investment. It also represents 16.3% of the real estate sector and 9.6% of the hospitality industry.
What it Means for You and Me
For ordinary investors, retirees and those seeking a new Mediterranean life, the key question is whether Catalonian tourist hotspots areas like the Costa Brava could become more attractive or less.
In the short term, instability is likely to put off some people from buying holiday homes in the region and to consider other sunshine destinations such as Valencia, Murcia, and Andalusia. Portugal, another favourite with British holidaymakers, could also see an uptick in property investment in the coming months.
And although Catalonia would certainly take a financial hit if it went its own way, considering that over 35% of its exports go to the Spanish market, the potential for a post-independence economic boom shouldn’t be underestimated. The region would have to pay for new state structures including embassies and institutions, but the large price tag would be offset by growth in ancillary services and capital inflow, creating a wealth of new opportunities for locals and expats alike.
The Bigger Picture
The violence in Catalonia sent the Euro tumbling, but if the region presses on and breaks away from Madrid, perhaps minting and printing its own currency, the effect on the single currency could be catastrophic. Other countries at odds with Brussels could be inspired to pursue independence for themselves, as well as regions like the Basque country, whose own national aspirations once dominated the agenda in Spain. This would increase the power of the British pound at a time when impatience over stalled Brexit negotiations is rising on both sides of the Channel.
A domino effect, perhaps involving the Visegrad nations of Poland, Hungary, Czechia and Slovakia, all at loggerheads with the EU over migrant quotas, could even spell the end for the EU itself.
In the event of numerous countries reverting to their old national currencies, the landscape for cross-border transactions will suddenly become far more complicated. Property investors, for example, will need to rely more on currency transfer solutions like the Covercy platform to avoid exorbitant bank charges and unfavorable exchange rates.