Catalonia is the highest taxed region in Spain but that’s not the reason why almost 3800 companies chose to abandon it for the last four years. It’s also not the reason why only approximately 2500 companies have relocated to the region in the same period of time. The reason for the decline in business is the growing fear of local companies voting against the Catalonian independence, which will be cemented during the plebiscite-style elections on September 27.
The fears of autonomy are even compounded by recent changes in Spain’s corporate governance law, which would allow for the country’s biggest publicly listed companies to move. And it’s not just the locals that are feeling the tension because from a report released by Spain’s Ministry of Economy in 2014, Catalonia’s direct foreign investment plunged by 16% despite the fact that Spain’s went up by 9.2% for the same period.
Also in the same period, overseas investment in nearby province, Valencia, surged by 300% in just a year. As President Joseph Bou of Catalonia Business Association said foreign investors are really doubting the political and economic future of Catalonia.
The Wrecking Ball Is In Motion
While Bou is correct in shedding light to the withdrawal of businesses from Catalonia, he has failed to comprehend that it’s already too late to appeal to reason to resolve the situation. What is happening in Catalonia, and throughout Spain, is emotionally driven. These regions are already venturing into an almighty shouting match between opposed nationalists who won’t heed to reason.
There’s no stopping them, and especially now that the government has announced a plebiscite-style elections. What will happen after the elections would dictate how Catalonia will fare.
If pre-independence wins a majority of the seats, then they will declare a unilateral independence of Catalonia from Spain. But Prime Minister’s Rajoy responds by changing the system of regional governance that will enable the central government to control a region’s governance institutions should an emergency take place.
Therefore, come September 27 the public will cast their votes depending on how they feel about national independence. The question on whether Catalonia will benefit economically by moving away from Spain will simply be part of the equation, not the deciding factor. Of course, it is only after the votes have been cast will businesses decide whether to stay or leave. Another key question there is if Catalonia should become independent, will it be allowed to remain in the EU and whether its banks will continue to qualify for ECB credit.
What Is There to Lose?
Prime Minister Mariano Rajoy doesn’t have anything to lose if Catalonia would have its independence. If that will be the case, Rajoy will be able to keep his party filled with fervent nationalists and weaken other parties that want dialogue. Catalonia is, after all, the Spain’s internal enemy.
Should Catalonia become independent, it’ll help things fall further into place according to the government’s liking. The move will be in line with the recently passed law that effectively criminalizes most forms of political protest. To assure that possibility, the government has announced its budget for 2016 really early with the hopes of using guaranteed tax cuts and spending rises to encourage gullible voters to trust them and vote for them. Remember that these promises go against the advice of the IMF that Spain should begin to tighten austerity after the elections. To cap these, the Rajoy government has even created a new electoral system that will be make it easier for the People’s Party to take control of hung parliaments in the future.
The message here is clear: Rajoy is not interested in making friends or allies within Catalonia, even if more businesses continue to suffer.