Big Questions for Catalonia – Bloomberg

 In World
It’s looking like crunch time for Catalonia’s bid to break away from the rest of Spain.

The regional parliament in Barcelona is due to meet this week in defiance of a Spanish court ruling to consider its next move in the country’s biggest constitutional crisis in four decades. Neither side appears to be backing down.

Catalan leader Carles Puigdemont could declare independence and Spanish Prime Minister Mariano Rajoy could suspend the regional government and send in security forces.

Here are some of the main questions and challenges facing Catalonia in a protracted clash when so many companies and so much infrastructure is controlled by Spain.

The Banks

Catalonia-based financial institutions are already getting itchy feet. Shifting their legal status to elsewhere in Spain could be a prelude to something longer term, then there’s the worry about deposits pouring out of the country. Banks are still backstopped by Spain and then the European Central Bank and they want to keep it thay way.

A customer uses an ATM outside a CaixaBank SA bank branch in Madrid.

Photographer: Angel Navarrete/Bloomberg

They key one is CaixaBank SA, effectively the Catalan company with tentacles running through the Spanish economy. After a board meeting on Friday, executives decided to move the bank’s legal base down to Valencia. Banco de Sabadell SA, also based in Catalonia with operations in both the rest of Spain and abroad, had already said it was upping sticks.

The Caixa group is a top shareholder in six of Spain’s 24 largest companies by market value. They include former phone monopoly Telefonica SA, oil producer Repsol SA, energy distributor Gas Natural SDG SA, road operator Abertis Infraestructuras SA and telecommunications tower operator Cellnex Telecom SA, making it the most powerful holding in Spain.

Currency and Debt

Unlike with Scotland’s bid for independence in 2014, the currency at least isn’t as much of an issue. Catalonia is in the euro because of Spain’s membership. But it does mean the region comes under the auspices of the ECB and the notion of breaking away raises the question of how Catalan companies may continue to benefit from its bond-buying program.

Companies based in Catalonia, including Gas Natural, Abertis and Cellnex Telecom SA, represent about 25 percent of Spanish corporate bonds held by the ECB under the program, according to a Bloomberg analysis of the data.

What’s more, Catalonia’s government has been shut out of debt markets because its credit ratings is junk, forcing it to rely on the central government to raise debt since 2012. The Spanish government is Catalonia’s biggest creditor.

Economy and Taxation

Catalonia’s rallying cry in its independence cause for years has been that it’s Spain’s economic powerhouse.

Services and industry are the biggest components, with tourism a big contributor. Catalonia is Spain’s leading destination for foreign visitors with 13.8 million arriving in the first eight months of the year, about a quarter of the national total.

Under Spanish law, the central government collects most taxes and then distributes funds to regional administrations. Catalonia pays about 8.8 billion euros ($10.3 billion) more than it receives, according to Spanish government calculations, a longstanding gripe of the separatists.

A new company law announced after a cabinet meeting on Friday makes it easier for companies to bail out of Catalonia. As well as the big companies, there are smaller ones like Codorniu, a maker of sparking cava wine founded in 1551. It said it would consider quitting the region in the event of independence.

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