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Hello Team! I do see some form of prelim analysis here especially for the second article but would be great to see a little more. :)

Interesting choice of article. Prelim analysis of impact of Catalonia's potential independence on GDP noted. In your report, if you are to just focus on Catalonia's impact on Spain's GDP, please ensure there's much depth in the research of this issue. Otherwise, do also bring in one more happening in Spain that could affect the country's overall GDP.

Here's a list of suggestions for your team to consider exploring either in padlet (in point form briefly) and/or in report (further research). You don't have to consider all and please go beyond this coverage in your report:

- Use the expenditure approach of GDP to examine how the mentioned components impacts the economy. With this, you could use the Keynesian model to explain how these components create a more than proportionate impact on GDP (multiplier effect).
- Specific sectors such as tourism was mentioned. How dependent is Spain on foreigners/countries?

- "But over 800 companies have shifted their legal headquarters out of Catalonia because of the crisis..." - What type of unemployment would increase?

Once you are happy with the updated padlet, please print out a hard copy and drop it into my pigeon hole, at BA office level 9. Let me know if you need time extension (beyond 1st Dec). Oh, and kick start your report writing soon. :)

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Concepts that are applicable to our topics

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Concepts that are applicable to our topics

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- GDP
- Unemployment
- Keynesian Model

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Article 1: Public and Private debts in Spain

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Article 1: Public and Private debts in Spain

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The article shows Spain’s economic sectors’ debt in Q2 2017. The total debt of all the sectors is 3.3 trillion euros, which is equivalent to 295% of GDP in Spain. In other words, each citizen owes three times their income in gross terms.

First, Public debt accounts for 131% of GDP and it has risen at a pace more than doubling from the 61% of GDP in 2009.
At the moment, the public debt is being financed cheaply because the European Central Bank is buying it, and the market sees the price it buys it at and the interest rate it provides as a good one. However, Catalonia's potential independence could fuel a critical increase in the interest rate and ECB might even stop supporting this debt, while withdrawing its purchases.

The rest of the gross debt corresponds to the private sector: non-financial companies, 100% and households, 64%.

The financial sector takes up the biggest share in this debt, with 177%, and the foreign sector, with 76%.

Despite this, the public debt is converted into revenues transferred to the private sector through the purchase of goods and services plus transfers. In other words, public debt eases and reduces private debt. Thus, the corporate and household sectors have managed to reduce their debt/GDP ratio from 215% to 164% today.

On top of that, there has been a Keynesian policy implementation in place of ECB monetary expansion and the expansion of government debt which has allowed Spain's economy to grow at an annual rate of 3% in three years.

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Below is the configuration Spain's economic sectors' debt in Q2 2017. The data is not particularly bad, depending on what the quality of these debts and the guarantees or assets they are financing is like. In other words, is it certain that these debts are recoverable, are these guarantees what the market says they are worth?

First: the total debt of all the sectors is 3.3 trillion euros, equivalent to 295% of GDP. In other words, that each of us owes in gross terms, three times our income.

Second: Public debt accounts for 131% of GDP. Therefore it's not true that this public debt is "just" 100% of GDP. The government and Brussels have joined forces to try to pull the wool over our eyes in this respect, using the Excessive Deficit Procedure (EDP). This is an accounting system which eliminates the debts between different administrations (for example, between Catalonia and the central government). This is logical from an accounting point of view, but not from an economic point of view, because this debt will never be paid.

Third: The rest of the gross debt corresponds to the private sector: non-financial companies, 100% and households, 64%.

Fourth: the biggest creditor of this debt is the financial sector, with 177%, and the foreign sector, with 76%. That said, the government and the non-financial private sector holds a substantial 42%.

Fifth: The result of this data are net consolidated figures which give us a total net external debt of 76% of GDP.

The data is not particularly bad, depending on what the quality of these debts and the guarantees or assets they are financing is like. In other words, is it certain that these debts are recoverable, are these guarantees what the market says they are worth?

Starting with public debt, 130% of GDP is no joke. Above all because of the pace at which it has risen: more than doubling from the 61% of GDP in 2009. At the moment, it's being financed cheaply because the ECB is buying it, and the market accepts that the price it buys it at - or the interest rate it provides - is a good one. But Spain is playing with fire with its Catalan mother and this could fuel a critical increase in the interest rate. Then add to this the fact that sooner or later the ECB will stop supporting this debt, as it begins to withdraw its purchases. For the time being, it has cut the volume of asset buying, but has prolonged the period.

On the other hand, we can say that thanks to this public indebtedness - which is transformed into revenues transferred to the private sector via the purchase of goods and services plus transfers - the corporate and household sectors have reduced their debt/GDP ratio from 215% to 164% today. Nobody usually comments on this, but there is obviously a double game of communications going on between the public and private sectors. And it has to be acknowledged that, whether it increases productivity or not, public debt eases and reduces private debt.

In other words, there has been a Keynesian policy in place, of ECB monetary expansion and the expansion of government debt, call it what you like. And this policy has allowed Spain to grow at an annual rate of 3% in three years. Another thing is that the government has not known how to cash in on this in terms of winning votes, clumsily stepping into one puddle after another and not capitalising on what it does well. And it did do well in not allowing an intervention and then managing to get a wide margin in term of its deficit, while Greece was crucified. But it did not do well in terms of publicising this. And Catalonia is proof of that.

So we can thank this government for its Keynesian lesson in economy, but not for how it has managed the defence of the Constitution.

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Below is the configuration Spain's economic sectors' debt in Q2 2017. The data is not particularly bad, depending on what the quality of these debts and the guarantees or assets they are financing is like. In other words, is it certain that these debts are recoverable, are these guarantees what the market says they are worth?

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Article 2 :The Potential Impact Of Catalan Crisis On Spanish Economy – Analysis

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Article 2 :The Potential Impact Of Catalan Crisis On Spanish Economy – Analysis

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The crisis in Catalonia, sparked by the regional government’s illegal proclamation of an independent state, is already taking a toll on the Catalan economy, and poses as a serious threat to the wider Spanish economy if the undesirable situation is prolonged. A potential heightening, or prolongation, of the political situation might adversely impact the economic outlook and financial stability in Spain.

The Bank of Spain warned that the economy’s GDP could fall between 0.3 and 2.5 points in the next two years, 2018 and 2019, depending on how long the crisis lasts and its impact on consumption, investment, employment and financing.

Catalonia plays a key role in Spain’s economy. Its GDP is slightly larger than Portugal’s and it generates one quarter of Spain’s exports, contributing to  net exports when computing GDP in the expenditure approach.

The most notable impact since the Catalan parliament declared independence is the increase in unemployment rate in Catalonia, specifically, an increase in structural unemployment. This is due to relocation of businesses and companies as there has been a mass departure of companies from Catalonia. Catalonia was the region whose number of registered unemployed increased the most in October (+14,698), which is its largest rise since October 2008. Its month-on-month growth in the unemployed of 3.67% was twice the rate for the whole of Spain.
On the other hand, this could lead to an increase in Gross Private Domestic Investment by companies in other parts of Spain, resulting in an increase in GDP of Spain.

In addition, Tourism numbers (Catalonia received 18 million of Spain’s 75.3 million tourists last year) and consumption have also taken a hit.

Lastly, greater uncertainty might also affect economic agents’ confidence and thereby affect their spending and investment decisions, which exerts a negative impact on economic activity and employment rate in Spain.

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By Elcano Royal Institute

By William Chislett*

The crisis in Catalonia, sparked by the regional government's illegal proclamation of an independent state last month, is already exacting a toll on the Catalan economy, and threatens to seriously weaken the wider Spanish economy if the situation is prolonged.

The region plays a key role in the economy. Its GDP is slightly larger than Portugal's and it generates one quarter of Spain's exports.

The most notable impact since the Catalan parliament declared independence on 27 October, in a disputed vote declared illegal by Spain's Constitutional Court, has been the exodus of companies from Catalonia, which quickly turned into a stampede. More than 2,200 companies have located their legal headquarters in other parts of Spain. Tourism (Catalonia received 18 million of Spain's 75.3 million tourists last year) and consumption have also taken a hit.

The Bank of Spain warned earlier this month that the economy could lose between 0.3 and 2.5 points of GDP in two years (2018-19), depending on how long the crisis lasts and its impact on consumption, investment, employment and financing.

Under its benign scenario, the worst of the uncertainty would end after the snap election on 21 December, called by the central government under its activation of direct rule of Catalonia following the independence declaration. The accumulated cost to the economy would be 0.3 points of GDP or around €3 billion.

The Bank of Spain does not say this, but this scenario assumes that the anti-secessionist parties -the conservative Popular Party, which governs Spain, the Socialists and the centrist Ciudadanos- could win more seats than the pro-independence parties, an unholy alliance of conservative nationalists (PDeCAT), the more rabidly secessionist Republic Left of Catalonia and the anti-capitalist far-left CUP.

In the worst-case scenario, following a victory by the pro-independence bloc and a continued stand-off with Madrid, up to 60% of the projected growth for 2018 and 2019 could evaporate. A lot is riding on this election.

The pro-independence parties won 72 of the 135 seats in the 2015 election on 47.8% of the vote. Recent polls show these parties narrowly gaining control of the parliament again, but Madrid is hoping that the anti-secessionist parties will galvanise the increasingly vociferous 'silent majority' against independence into voting on a larger scale than previously.

The Bank of Spain is currently holding to its GDP growth forecasts of 3.1% this year, 2.5% in 2018 and 2.2% in 2019. Luis de Guindos, the Economy Minister, has already lowered growth from 2.7% to 2.3% next year.

'A potential heightening, or prolongation, of the political situation might adversely impact the economic outlook and financial stability in Spain', says the Bank of Spain's report. 'Greater uncertainty might dent economic agents' confidence and thereby affect their spending and investment decisions, subsequently exerting a negative impact on economic activity and employment'. The report also underscores 'the political tension in Catalonia and its potential repercussions for funding conditions on the capital markets and for the Spanish economy as a whole'.

The Bank of Spain is careful to emphasise that its scenarios are hypothetical and depend on a set of assumptions, and should not be construed as economic growth forecasts. 'They serve to evidence the significant economic risks and costs of the situation caused by the independence initiatives in Catalonia'.

The companies that have voted with their feet include CaixaBank, Spain's third-largest bank, the bank Sabadell and Codorníu, the cava producer. CaixaBank, the main financial institution in Catalonia, has played a major role in the region's economy and as a sponsor of cultural and social programmes through its foundation. It has close to 40% of the total deposits in Catalonia and Sabadell 15%. Both banks have also moved their tax residence.

These two banks, in particular, moved their legal, though not corporate, headquarters in order to protect the interests of depositors and shore up confidence. The banks need to remain within the euro zone to maintain regulatory continuity and in order to continue to access the European Central Bank's liquidity mechanism -which would not be the case if Catalonia ever became an independent country-. It would have to re-apply for membership and would only need one EU country to veto it (such as Spain, obviously) and membership would be scuttled.

The banks' move, followed by branch managers taking to the phone to reassure customers that their investments were safe, had the desired effect and reversed to some extent a run on deposits. The big banks Santander and BBVA were not affected (they benefited from the run) as their legal domiciles are not in Catalonia.

Similarly, the shares of both banks took a knock on 4 October, three days after the illegal referendum on Catalan independence, when 90% of the 2.3 million that voted were in favour of secession. Sabadell's share price fell 5.69% and CaixaBank's 4.96%. The Ibex-35, the benchmark index of the Madrid Stock Exchange, fell 2.85%, the largest one-day fall since the UK decision in June 2016 to leave the EU, to below 10,000 for the first time in some six months and far from this year's peak of 11,250 reached in May. By 7 November the index had recovered to 10,230.

Six of the companies that have relocated form part of the Ibex-35. Multinationals such as Volkswagen, which owns the Seat plant near Barcelona making 2,000 cars a day, are keeping a close watch on the situation.

In what could be a pointer for the future, until the uncertainty ends, Catalonia was the region whose number of registered unemployed increased the most in October (+14,698), its largest rise since the same month of 2008. Its month-on-month growth in the unemployed of 3.67% was twice the rate for the whole of Spain.

Spain has gone through a lot since the 2008 crisis to restore and consolidate growth, and it would be a tragedy if this evaporated because of the actions of hotheads.

About the author:
*William Chislett, Associate Analyst, Elcano Royal Institute | @WilliamChislet3

Source:
This article was published by Elcano Royal Institute

Did you find this article informative? Please consider contributing to Eurasia Review, as we are truly independent and do not receive financial support from any institution, corporation or organization.

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The Potential Impact Of Catalan Crisis On Spanish Economy - Analysis

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By Elcano Royal Institute By William Chislett* The crisis in Catalonia, sparked by the regional government's illegal proclamation of an independent state last month, is already exacting a toll on the Catalan economy, and threatens to seriously weaken the wider Spanish economy if the situation is prolonged.

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Article 3: Spain accounted as one of the worst EU countries for income inequality

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Article 3: Spain accounted as one of the worst EU countries for income inequality

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The article shows that Spain currently faces a large problem in its income inequality, even though its overall economy has been improving. In this case, even with an improving GDP, it is an imperfect measure of the economy situation in Spain, as there is an uneven income distribution. This means that the difference in the incomes of the richer and poorer households in Spain are quite significant compared to other countries in the EU.

It also faces a high unemployment rate with about 17.3 percent of its citizens being unemployed and it is especially prominent for the youth in Spain, with the youth unemployment rate at 40 percent. Spain's early school leaving rate is close to about 20 percent, making many youths less employable, therefore increasing the youth unemployment rate.

However, Spain has shown efforts made to improve the situation by implementing skills training programmes targeted for the youths to enter the digital industry. This way, it helps to improve the employability of youths and preempts structural unemployment.

Spain is also expected to face an unemployment problem in the long term as its long term unemployment rate is about 9.5 percent.

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Young people are particularly likely to be in temporary employment in Spain. Photo: Pau Barrena/AFP

A new report by the European Commission warns that while Spain's economy is improving it is among the worst performers in the union for income inequality, and young people are in a risky position.

Spain, along with Greece, Bulgaria and Lithuania faces a "critical situation in terms of income inequality" according to the draft 2018 Joint Employment Report by the European Commission, which uses data from 2016 and early 2017.

The richest 20 percent of households in the country received an income share 6.5 percent times that of the poorest 20 percent, compared to an average of 5.1 times across the union, and almost twice as high as the values for the best performers.

And though in general the economic situation across the union continues to improve, there are "very substantial differences" between Member States. Unemployment ranges from 3.1 percent in the Czech Republic to 17.3 percent in Spain and 21.6 percent in Greece.

Youth unemployment in particular is a problem for Spain, sitting at 40 percent compared to an EU average of 18.7 percent, while more than 70 percent of young workers in the country are working under a temporary contract (compared to only 13.1 percent for workers aged 25-49).

READ ALSO: Tourism helps Spanish unemployment to sink, but most new jobs temporary

The delicate situation for Spain's youth is also reflected in its early school leaving rate, which is close to 20 percent, meaning it is flagged as a "critical situation". The EU average is 10.7 percent, and the target set for Member States is 10 percent.

The European Commission did however praise a Spanish digital skills training programme of training designed for the digital industry and new business models as an example of "good practice" when it comes to investing in re-skilling young people in order to make them more employable.

Spain was also one of the countries where a quicker-than-average drop in the unemployment rate was recorded, as well as a quicker than average shortening of the gender pay gap.

But the share of people at risk of poverty or social exclusion in the Iberian nation is significantly higher than the EU average, and 22 percent of the population is at risk of monetary poverty, compared to countries like Denmark and Finland here it is below 12 percent.

Spain's 17.3 percent unemployment rate is ultimately one of the worst, and with a long-term unemployment rate of 9.5 percent "the long term unemployment challenge still appears to be pressing in Spain," the report concluded.

READ ALSO: Catalonia crisis could impact Spanish economic growth, European Commission says

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Spain one of the worst EU countries for income inequality: report

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Young people are particularly likely to be in temporary employment in Spain. Photo: Pau Barrena/AFP A new report by the European Commission warns that while Spain's economy is improving it is among the worst performers in the union for income inequality, and young people are in a risky position.

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Overall impact on Spain's Economy and GDP

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Overall impact on Spain's Economy and GDP

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GDP/ AE= C + I + G + (X - M)

As unemployment rate increases, the income level of nationals will decrease, which reduces purchasing power due to lower real disposable income and thus, reduce their spending. This decreases the consumption of households.

As business economic agents lose confidence due to a negative expectation towards the economy, businesses will reduce their spending and investment, which results in a decline in the gross private domestic investment and consumption.

Catalonia generates one quarter of Spain's exports, hence net exports of Spain will face a decline when Catalonia become independent.

All the above will cause the aggregate expenditure to decrease, creating a multiplier effect which results in a greater cumulative change in the real GDP of Spain. The multiplier amplifies small declines in aggregate expenditures which might even turn into downturns in Real GDP, income and employment.