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Catalonia’s independence would have “a major adverse impact on Spain’s economy” warns Moody’s

Rating agency Moody’s warns that Catalan independence from Spain might have “a major adverse impact on Spain’s economy” but also that “Catalonia itself could also suffer” if the break–up is not friendly. In a forecast about the Spanish economy published this week, the New York-based company analyses potential risks that might damage the expected economic recovery. Moody’s praise the high level of exports, based on a higher competitiveness reached by lowering salaries. However, the report, signed by Zach Witton, highlights that “debt reduction by households and businesses, elevated unemployment, the housing market correction, and tight credit will drag on growth”.

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16 January 2014 07:47 PM

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ACN

London (ACN).-Rating agency Moody’s warns that Catalan independence from Spain might have “a major adverse impact on Spain’s economy” but also that “Catalonia itself could also suffer”. In a forecast about the Spanish economy published this week, the New York-based company analyses potential risks that might damage the expected economic recovery. Moody’s praise the high level of exports, based on a higher competitiveness reached by lowering salaries. However, the report, signed by Zach Witton, highlights that “debt reduction by households and businesses, elevated unemployment, the housing market correction, and tight credit will drag on growth”. The rating agency also identifies other negative factors that might harm the economic recovery; two of those risks are financial and one political. Moody’s warns that pressure on Spanish Government bonds might increase again since Spain’s banks can no longer buy them; a fall in prices could bring “a severe deflation” and a “vicious spiral”; and Catalonia’s independence might “discourage foreign and business investment” in Spain and might “jeopardise trade and financial linkages” for Catalonia. The Catalan Finance Minister, Andreu Mas-Colell, answered to Moody’s report and guaranteed on Thursday that Catalonia “will not do anything to economically destabilise Spain”.


Moody’s analysis is that Spanish banks “are likely” to no longer use European Central Bank “loans to buy domestic sovereign bonds”, which “will put upward pressure on government borrowing costs”. The rating agency warns that Spain’s banks cannot continue buying domestic bonds as it is “unsustainable”. Secondly, it states that between March and October 2009, Spain went through a period of deflation and points out that “consumer prices are likely to hover around zero” during 2014. This potential fall in prices “could prevent the recovery from gaining traction” and “would make it harder for the government to reduce debt”. The agency emphasises that “Spain, with high levels of private and public debt, is particularly vulnerable”.

Catalonia’s independence would be negative for Spain

On the strictly political side, Moody’s states that “the possibility that Catalonia will separate from Spain could discourage foreign and business investment”. In this vein, it warns that “Secession would have a major adverse impact on Spain's economy”. The rating agency recalls that “Catalonia—which includes the city of Barcelona—accounted for 19% of Spain’s total economic output in 2010, the largest share among the country's administrative regions”.

Moody’s briefly mention that “pro-independence officials in Catalonia recently asked to hold a referendum on the issue late in 2014”. It also stresses that the Spanish Government is totally opposed to it and “declared it unconstitutional”.

Catalonia might also “suffer” if “trade and financial linkages” are affected

In a scenario of an unfriendly split between Catalonia and Spain, Moody’s states that “Catalonia itself could also suffer, jeopardizing the trade and financial linkages it enjoys as part of the European Union and the euro zone”. The financial company highlights that “Catalonia would also have to take on a share of Spain’s public debt”, although it does not say what share and whether it might be a real burden for its economy.

The international rating agency expects that the pressure on the Spanish Government to allow a self-determination vote for Catalonia is likely to increase in the coming months “if pro-independence politicians win greater representation in the European parliamentary elections in May”. Furthermore, it “may also increase if Scotland’s population votes in September to leave the U.K”.

The Catalan Government guarantees that Catalonia “will not do anything to destabilise Spain”

The Catalan Finance Minister, Andreu Mas-Colell, answered to Moody’s report and guaranteed on Thursday that Catalonia “will not do anything to economically destabilise Spain”. Before the Catalan Parliament, Mas-Colell stated that Moody’s’ fears would disappear if the Spanish Government authorised the self-determination vote. In addition, he stressed that if the independence option finally achieved a consultation vote, “there would be a negotiation process”, “always following the principle of legality”. In this framework, Mas-Colell guaranteed that “Catalonia would guarantee Spain’ stability”, as it has proved on many occasions in the past, he added.

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  • Moody's headquarters in New York (by Reuters)

  • Moody's headquarters in New York (by Reuters)