Independent Catalonia’s economy would get an A+ rating, 7 levels better than the current one

Barcelona (ACN).- According to a study by the Professional Association of Economists of Catalonia (Col·legi d’Economistes), an independent Catalonia would obtain a much better grade from rating agencies than it currently gets, taking into account its diversified economy and higher GDP per capita than the European average. Specifically, it would obtain an A+ rating, 7 levels higher than Catalonia’s current BB ‘junk bond’, using Standard&Poor’s classification, and 4 levels higher than Spain’s BBB. The study highlights that without the current fiscal deficit with the rest of Spain, the rating would be “at least” that of the Basque Country and would enable the Catalan Government to access the international financial markets. Catalan taxpayers pay much more to the Spanish Government than the amount they get back in terms of services and infrastructure. In fact, the Spanish Government admitted an annual fiscal deficit of between 6.4% and 8.7% of Catalonia’s GDP depending on the calculation formula (representing between €13bn and €17.5bn per year). The study believes that, after a hypothetical transition period, an independent Catalonia would remain within the European Union and would continue to have the Euro as its currency, taking for granted a non-hostile reaction by the Spanish authorities and European institutions, as otherwise not only the Catalan economy would be harmed, but the Spanish one would also suffer terrible effects that could seriously affect the entire Eurozone.

The study ‘Approximation to the sovereign risk of a Catalan State’, compiled by the economists Joan Elias and Joan Maria Mateu, aims to shed some light on the economic situation of an independent Catalonia, particularly regarding the international financial markets. It was requested by Catalonia’s Professional Association of Economists, as an attempt to bring rational arguments to the current debate about independence. Currently, the Catalan Government cannot access international financial markets because, in the current situation, it has a rate equivalent to that of junk bonds, ‘BB’ using Standard&Poor’s rating scale.

The study’s authors insist on their assumption that an independent Catalonia would remain within the EU and would continue using the Euro, since the contrary would seriously harm both the Spanish and European economies, as well as that of Catalonia. Therefore, they claim to use the current objective data and the internationalisation of the Catalan economy.

In addition, if Catalonia was not an independent country, but it did not suffer from an “historical” and perpetuated fiscal deficit and had instead a fiscal relation with the Spanish Government similar to that of Navarra and the Basque Country, “not only would Catalonia not have any sort of funding problems, but it would surely at least have a rating equivalent to that of those Autonomous Communities”. However, in the current situation, Catalonia suffers from a constant lack of resources, despite its citizens paying high taxes, and it obtains bad ratings. This stops its public institutions obtaining liquidity in the international financial markets by issuing sovereign bonds and it also affects private companies from Catalonia, which pay higher interest rates than companies from northern or central Europe. Currently, the Basque Country and Navarra have an A- grade and Catalonia a BB one. Spain as a whole has a BBB grade.

Joan Elias insisted that an independent Catalonia could only be a reality by reaching an agreement with Spanish and the European institutions. Elias is fully convinced that the “rational way” will finally prevail, as “another scenario would mean expelling from the EU 7.5 million citizens and an economy with a GDP of more than €200 billion”, equivalent to some 20% of Spain’s GDP or the size of Finland’s or Portugal’s economies.

The study makes an assessment and grades 5 different sector of Catalonia’s economic reality, a similar formula used by rating agencies. It assesses the institutions, the economic situation, the internationalisation, the public finances and the monetary policy. Each area receives an overall grade from 1 to 6, 1 being the best mark and 6 being the worst. Standard&Poor’s, one of the world’s three man rating agencies, uses the same grading system. Furthermore, they have grouped the first two areas together and the three others into a second group.

The first group would obtain a 2.5, which is equivalent to that of a “strong” economy. This would come with a rate between AA+ and BB-. The second group would obtain a 3.2 grade, that of a “moderately strong economy”. It would obtain between AA+ and B+. Combining all the grades, the definitive rating would be A+, although it could also be A, in the worst case. The first grade (A+) would be if Catalonia was to assume 9% of the Spanish Government’s total debt (equivalent to the investments made in Catalonia and part of the general running costs) and the worst case was if Catalonia was assuming 19% of the Spanish Government’s total debt (equivalent to Catalonia’s GDP, while it has a population that represents less than 16% of Spain’s). This means that Catalonia would obtain a grade that is 7 or 6 levels better than the current one and 4 or 3 times better than that of Spain.