For the first conflict watch, I decided to focus on the current conflict in Spain to highlight that conflicts do not necessarily have to be violent. I would like to write about the cease-fire in Gaza, but there has been surprisingly little news on that front, which is probably a good thing—in that case no news is good news.
A little background on Spain’s current condition. In 2008, before the global recession began, Spain had a very manageable 36.1% Debt/GDP ratio. This had not always been the case, in the late 90s the newly integrated EU countries received huge capital inflows, and Spain’s Debt/GDP ratio peaked at 67.4%. However, in the years leading up to the crisis, Spain was reducing its Debt/GDP ratio at an impressive pace. However, capital inflows have the effect of making a nation’s currency stronger, making its exports weaker. This is all good and fine while money remains available at a reasonable rate. Once a cataclysmic event occurs, such as the “Lehman-Moment”, liquidity can dry up very quickly, and there is no longer money to keep the economy going. Being in the Eurozone, countries give up their right to print more money. In order to attract money, interest rates on debt go up, making debt accumulate even faster. Spain currently has 25% unemployment, a Debt/GDP ratio of 90%, and are currently facing austerity measures that will further depress the economy in order to unlock low interest debt relief. To put it simply, through little fault of itself, Spain finds itself in a Great Depression-esq recession.
To make matters worse, one of Spain’s largest regions, Catalonia, has recently agreed to vote on Independence from Spain. With 7.5 million people and 126.6 billion Euros of GDP, Catalonia accounts for roughly 8% of Spanish economic output and 16% of the population.
Catalonia leaving Spain would create many complications. For one, Catalonia has a large debt burden (44 billion Euros as of June) representing 22% of its GDP. If Catalonia seceded, would Spain still be responsible for Catalonia’s debt up to this point? Could Catalonia default on its debt? Considering the vast majority of Catalonia’s trade would occur with Spain and the EU, a split from Spain would have to be “amiable”.
Spain currently pays 77.67% of Catalonia’s debt and 50% of its public spending. On the flip side, Catalonia pays roughly 8% of its GDP per year to projects outside the region, money it could use to finance debt and social spending. It appears the people of Catalonia believe they would be better off on their own.
What would a split mean for Spain, as Catalonia is one of Spain’s largest regions? We often hear that Greece must stay in the EU to avoid a domino-effect of countries leaving; could a large providence have a similar effect on the greater EU?
Given the current situation, as someone who believes in the importance of the EU as a symbol of democracy and “western values”, it would be best for Catalonia to put off calls for independence until after the recession is over. Of course, this is why Catalonia feels like it must act now; with a new round of austerity on the horizon, Catalans believe it is in their best interest to become independent now.