Independence would be economically beneficial for Catalonia, finds Brussels think tank CEPS

Barcelona (ACN).- The Brussels-based Centre for European Policy Studies (CEPS) and Barcelona-based Centre for International Affairs (CIDOB) think tanks, together with an Italian and a Greek research centre, have presented in the European Parliament a report stating that the economy of an independent Catalonia would grow more in the next 15 years than if the current 'status quo' was kept. In addition, unemployment would be 3 percentage points lower and salaries would be higher. The study analyses 3 different scenarios: the current model, an agreed independence process and a unilateral declaration of independence. In either case of independence, the Catalan economy would be in better shape in the long-run than if it stayed under the current framework, the researchers conclude. However, in the event of a unilateral process, there may be negative economic effects in the short-term, mostly due to uncertainties related to EU Membership. Nonetheless, they consider the current inter-territorial fiscal scheme – imposed by the Spanish Government – "unsustainable at macroeconomic level" for Catalonia.

"Catalonia would benefit from secession in terms of GDP", clearly concludes a study compiled by the prestigious Brussels think tank CEPS, the Catalan CIDOB, the Rome-based Istituto di Studi per l'Integrazione dei Sistemi (ISIS) and the Greek E-3 modelling lab from the Polytechnic University of Athens. The authors stress that the benefits "are stronger if independence comes after a mutual agreement with Spain" due to "the lower levels of uncertainty". The study, called 'Scenarios of macro-economic development for Catalonia on Horizon 2030', was written by Rym Ayadi (CEPS), Carlo Sessa (ISIS), Leonidas Paroussos (E-3 modelling) and Marc Gafarot (CIDOB).

However, even in the event of a non-mutually agreed and unilateral declaration of independence, after 4-5 years Catalonia's GDP would grow at a higher rate than if it had stayed within Spain in the current format. In this case, "Catalonia would grow at a lower level than in the mutual-agreement scenario, but above the reference level", which is the current 'status quo'. The unilateral declaration of independence would bring negative effects in the short-term, mostly due to the uncertainties of the process and how an independent Catalonia would fit or not into the European Union and the Eurozone. However, after a few years, the Catalan economy would grow at a faster rate and would overtake the position it would have been in if it had stayed within Spain.

The report foresees that if Catalonia continues being an Autonomous Community within Spain, its average GDP will grow by 2.43% annually between 2015 and 2030 and the unemployment rate would be 7.3% at the end of this period. The study then compares those figures with those that could be obtained after a mutually agreed independence process and after a unilateral declaration of independence.

Catalonia would be growing at a rate of 4.32% by 2030 in the event of smooth independence

In the event of a smooth independence transition, done with Spain's agreement, the Catalan economy would grow at an annual average rate of 3.27%, higher than the 2.43% rate that would occur if the current 'status quo' was kept. The experts believe than in the first year, the Catalan economy would decline by 0.85% but that it would gradually recover and reach a 2.5% growth rate by 2018 and 4.32% by 2030, much higher than if it had stayed within Spain. Investment would drop by 3.9% in the first year of independence and by 1.5% in the second year (compared to the current situation), but would grow from the third year on and by 2030 would be 2.1% higher than if the 'status quo' was kept.

Regarding unemployment, the study states that in the event of a mutually agreed independence process, Catalonia's unemployment rate would drop to 4%, while if it stayed within Spain it would be 7.3%. On top of this, salaries would experience a great change. If it stayed within Spain, wages per hour would be 0.38% higher by 2030, while in case of independence they would be 7.4% higher by that time. In fact, the text sends the warning that higher salaries could harm Catalonia's competitiveness in the 2025-2030 period.

Even with a unilateral declaration of independence, Catalonia would grow more in the mid- and long-term

If the independence process is not smooth and there is not a mutual agreement with Spain, the Catalan GDP would be lower in the short-term and higher after 15 years than if Catalan had stayed within Spain. During the first 5 years, the experts expect Catalonia's GDP to be between 2.5% and 0.5% lower than if it were to continue as an Autonomous Community. The different figures are due to the different uncertainties related to this path. However, at the end of the 2015-2030 period, even with unilateral independence, the Catalan GDP would be 2% higher than if it had stayed within Spain.

The report states that in the 6^th year after independence, Catalonia's economy would grow at a faster rate than if in the current 'status quo' were to be kept. In addition, this scenario also foresees a drop in investment in the first years. Investments would be between 8% and 4.5% lower in the first 4 years  following a unilateral declaration of independence. In addition, they would still be 1% lower after 15 years (by 2030) than if Catalonia had continued within Spain.

Regarding unemployment levels, in the first years after a unilateral declaration of independence, unemployment would be almost the same as when Catalonia stays within Spain: only 0.03 of a percentage point difference in the first year and 0.73 of a point lower in the 4^th year. However, by 2020, the differences would start to be significant and unemployment would be 2.54 percent lower than if Catalonia had  continues as part of Spain. By 2030, a Catalan state resulting from a unilateral declaration of independence should have an unemployment rate of 4%, 3.2 percentage points lower than if it had continued as an Autonomous Community.

Catalonia would pay less than Spain for its public debt by 2030

The report also analyses what would happen with consumption and debt. In the event of independence, private consumption would drop by 3% in the first year while public consumption would increase by 27%, as the new state would have to develop many new powers and set up a new administrative infrastructure. In the third year after a mutually agreed independence, private consumption would be higher than that which would occur should Catalonia remain an Autonomous Community. In the event of a unilateral process, private consumption would be higher after 5 years.

Regarding public debt, with mutually agreed independence the new Catalan state should have a public debt representing about 100% of its GDP. By 2030, such debt would have dropped to 68.2%. In addition, Catalonia would pay on its debt in the first years interest rates similar to those of Spain, and which would be significantly lower by 2030. In the event of a unilateral independence process, Catalonia would pay a 2 percent higher interest rate on its debt during the first years. However, by 2030, it would pay an interest rate of 2.78%, while Spain would pay 3.12%. In the event of a unilateral declaration of independence, Catalonia's public debt would be 60% of its GDP in the first year and 41% by 2030.