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Catalan independence will make Spain poorer or, to use the technical terms, it will have negative implications for Spain's credit profile. This is according Moody's credit agency which says that, due to the size of the Catalan territory, its secession would weaken the country's economic strength. Nonetheless, it predicts that Catalonia will remain part of Spain, as there are many obstacles to its exit.

"The region of Catalonia brings in approximately 19% of Spain's GDP and represents 16% of the total population of the country, and its GDP per capita is above the national average, so its exit would weaken Spain's economic strength and, as such, would have negative implications for its credit rating," write Moody's senior vice-president Sarah Carlson and analyst Marisol Blázquez, the report's coauthors. However, they say that, according to their predictions, "Catalonia will continue being part of Spain", since there are many obstacles to its independence being formalised.

Among the difficulties the agency sees are "the firm and constant opposition" of the Spanish government, the existence of a series of tools that the Spanish state has to confront the independence process and the surveys, which suggest "popular support is less than a majority".

Similarly, it says that if the 1st October referendum does happen in the end and gives a result in favour of independence, the lack of a legal basis and a minimum turnout limit "would probably undermine its legitimacy".

Ceding greater decentralisation

The political relationship between the central government and the Catalan authorities "will remain very tense", predicts Moody's in its report published this Monday, which it believes might complicate the efforts to reach a compromise that responds to the desire for a more autonomous Catalonia.

"A greater decentralisation of Catalonia with respect to Spain is probably, given the pressure from independence supporters," say Carlson and Blázquez in the study.

They believe that the best solution would be to satisfy some of Catalonia's main demands, like those for more money returned from the central government and reform of the framework of regional financing, always respecting the Spanish constitution.

Spain is one of the most decentralised countries of the European Union in terms of public sector spending, although it's one of those that wields most power in terms of public finances.

The control over the finances of the governments of the autonomous communities has been one of the notable weaknesses in the Spanish government's deficit reduction strategy in recent years, despite having greater ability to legal compel fiscal consolidation in the regions after the 2012 passing of the Law of Budgetary Stability which established limits on government debt, among other rulings.

Loss of financial support

On the other hand, Moody's warns that the continuing tensions could also have potentially negative implications for the government of Catalonia, whose current long-term issuer and debt ratings are 'Ba3' with a "negative outlook", which reflects Moody's concerns about the government's "capacity to meet or roll over its short-term financial obligations".

On this topic, although the political debate on independence has not yet affected the liquidity support from the central government through the FLA (Autonomous Liquidity Fund), Catalonia's credit quality "could see itself negatively affected if the political tensions intensify still further, provoking doubts about the willingness of the central executive to continue providing financial support".

Last week, the Parliament approved the Law of Transitional Jurisprudence and Foundation of the Republic in anticipation of the referendum on independence from Spain on 1st October.

According to the law, the independence of a new state would be declared 48 hours after the vote. This law has since been suspended by Spain's Constitutional Court, "marking a new escalation in the tensions between the two governments".

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