The recent Catalan elections in Spain have revived the regions quest for independence from Spain. In short, the region wants independence from Spain because Catalans feel the region contributes far more to the overall Spanish economy through taxes than the other regions – and the support they receive from the government when times are hard is not reflected equally.

Whilst the situation is similar in part to the Scotland/England divide seen in the UK – the financial and population figures are quite a lot larger in this case – as a result, the knock on effects will be substantial to say the least if Catalonia does in fact secede from Spain.

The chances of this happening in reality are pretty low – primarily due to a myriad of laws that would need to be overcome, as well as some constitutional wording that technically blocks the possibility in the first place.

The Catalans have a good point; they are the economic breadwinners for Spain and have very well established commercial, business, industry and tourism sectors. If the revenue generated from the region were to come to a halt overnight it could be a substantial problem for the rest of Spain.

Aside from the mountain of things that would need to be legislated for to even make the split work (currency, nationality documentation, EU membership, recognition by the UN etc.) which in itself would have astronomical costs, the practicality of the quest for independence and the actual reality of it being possible seem to have been missed.

The costs for both sides alone would be astronomical. The cash spent achieving independence would effectively be “dead money” anyway that would see no return – both sides would have to find the money from somewhere to create and accommodate the new state. Funding the changes would likely have to come from the respective party coffers – I doubt very much the EU would fund such a venture – especially when Spain itself has already been bailed out after becoming overzealous with its mortgage lending.

Even if the money were found/borrowed/created – what then? I can’t image Spain making it easy for the new state at all – the possibility of even higher taxation (for import/export) for the newly found independent region is a real possibility.

Other points to consider are continuity and day to day business – the Spanish legal and financial systems are complex and cumbersome at best – splitting the country and then reincorporating parts of the system back in will not only be a nightmare but add even more confusion.

The media might have us believe Spain is in recovery – the property markets in particular. Such extensive changes to the economy would have a negative impact across the financial markets – including mortgage lending and house prices. How large the impact would be and how long it might last would remain to be seen of course, but it would certainly put the recovery on hold for some considerable time.

Catalans may well believe the grass is greener on the other side; the reality I fear is a very different story. Both sides face massive costs just to make it happen, and neither has the economic strength at the moment to ride the storm. The end result if this goes ahead could very well be the financial demise of both sides.

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