If Mas pushes the issue and holds a referendum without any legal substance, “huge economic” challenges would lie ahead for Catalonia, Cominetta added.
Although an independent Catalonia would have a gross domestic product (GDP) to debt ratio of 20 percent and its fiscal surplus would stand at 4 percent, Catalonia’s economic prospects would be “gloomy, possibly even disastrous.”
The region would not be in the European Union and the euro zone and would therefore lose access to its predominant export market. It would have to introduce a new currency “in an already troubled economic environment, with public debt fully denominated in a foreign currency, without access to bond markets and without [European Stability Mechanism] and [European Central Bank] protection,” the report said.
It’s the “public debt fully denominated in a foreign currency, without access to bond markets and without [European Stability Mechanism] and [European Central Bank] protection” bit that I’m not convinced by.
If Cataluña becomes an independent state then it has every right to denominate its debts in the Catalan currency – that’s exactly what sovereignty is about. And as for ECB protection – for crying out loud – it’s precisely because there isn’t any ECB protection that this crisis has escalated. With its own central bank and its own currency Cataluña will have its own lender of last resort and be able to genuinely protect itself. There’s no reason at all to think they’ll be shut out of the bond markets because with their own currency they will always pay their debts. They could even buy their own bonds if push comes to shove – just like the UK. As for exports – devaluing their currency will give a boost – especially to tourism.