Here’s how bad economically a Spain-Catalonia split could really be

A split between Spain and Catalonia would cause a major political shake-up in the country but would also have significant consequences for the economy of both sides, experts have told CNBC.

Police fired rubber bullets, wrestled protesters, smashed doorways and carted off ballot boxes in several parts of Barcelona on Sunday, as long lines of people voted in an independence referendum that could radically reshape politics across a divided region.

Pro-independence lawmakers hope the northeastern region will gain complete political and economic autonomy from Spain despite the referendum putting Catalonia in open defiance of central authorities in Madrid.

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Demonstrators clash with Spanish National Police officers as they leave the road outside the Catalan Pro-Independence Lefty party CUP headquarters on September 20, 2017 in Barcelona, Spain.

As the most prosperous of Spain's 17 regions, Catalonia houses roughly 19 percent of Spain's economy, benefiting from tourism, exports, manufacturing, and industry.

Catalonia has talked of separation from Spain since the founding of Estat Català – a political movement which began in 1922 - and throughout the 36-year dictatorship of Franco, however, the resurgence of the pro-secession movement over the past few years is due primarily to Spain's economic woes, a 2010 constitutional court decision to lessen Catalonia's sovereignty, and a distrust of Madrid or the centralized Spanish government.

Amid discussions of Scotland's own relationship to the European Union after Brexit, questions have arisen on the economic implications of a Catalonia-Spain split. Here, CNBC investigates the implications if the two areas divide.

Immediate impacts of the separation

The short-term outcomes of separation would be negative for both parties, according to Alain Cuenca, an economics professor at the University of Zaragoza in Spain.

"The establishment of a border would result in a loss of jobs, income and wealth for everybody, whether they live in Catalonia or in the rest of Spain," Cuenca told CNBC via email.

"Those losses would be provoked by the obstacles to trade, by financial problems, by the spending needs of the new state."

While Catalans only account for about 16 percent of the Spanish population, Catalonia makes a hefty contribution to the overall Spanish economy, making 223.6 billion euros ($262.96 billion) a year, according to the regional government. This is around 20 percent of its total gross domestic product (GDP). Larger than the contribution that California makes to the whole United States.

Using figures from official European and Catalonian organizations, Business Insider claimed earlier this year that the region would quickly gain about 16 billion euros yearly in the case of a split, as they would no longer have to pay taxes to Spain. This would then result in a loss of about 2 percent to the Spanish GDP (gross domestic product) yearly.

At the same time, Catalonia could take a potential hit, as 35.5 percent of Catalan exports are to the Spanish market. Catalonia would also have pay to create new state structures (embassies, central banks, etc.) which carry a large price tag.

Earlier this month, Spanish Economy Minister Luis de Guindos claimed that Catalonia could see its economy shrink by 25 to 30 percent and its unemployment double if it splits to form a separate state.

Regardless, the fate of both nations would ultimately come down to the decisions made in post-separation negotiations on debt and the European Union.

The debt issue

Spain's national public debt in 2016 was priced at roughly $1.18 trillion, according to central bank statistics. Meanwhile, Catalonia has amassed one of the largest public debts of Spain's regions, at roughly 72.2 billion euros ($86.9 billion) in 2016. Around 6 billion euros of this is for long-term securities that have been issued and the rest being various loans from different institutions.

Therefore, Catalonia accounts for around 7 percent of Spain's debt, which is not a small price tag. This aspect, combined with the loss of Catalonia's tax revenues, would be a hit to the Spanish economy.

While many believe that the public debt of the new nation "would inevitably be assumed by the Kingdom of Spain," Cuenca explains that the direct separation impact to the debt is impossible to predict.

"The problem, again, is transition: For how many years would financial trouble last? How many jobs, how many investments, how many commercial operations would be lost during transition? No one knows precisely," Cuenca said.

The success of Catalonia is determined heavily on whether or not they would assume a percentage of the Spanish debt and if they would be required to pay off their own debt. Either situation could prove to be detrimental to a new Catalan nation and would damage the potential for economic expansion.

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Deputees of Junts Pel Sí and CUP applaud during the debate to prove the Independence Referendum Law in Barcelona of Catalonia's Parliament in Barcelona, Spain on September 6, 2017.

The European Union

"In terms of trade, if Catalonia were to remain as part of the EU, nothing would change," Albert Banal-Estañol, an economics professor at Universitat Pompeu Fabra, said.

This is because Catalonia would retain its current trading partners and continue to use the euro. Catalonia, however, does not have an automatic right to membership in the European Union. This issue echoes problems that arose during Scotland's own independence referendum in 2014.

In order to become a part of the union it must receive a unanimous "yes" from EU members and that includes Spain and its allies, which are unlikely to vote for Catalonia's addition to the union. If the new nation were to be denied entrance or have difficulty joining the union, the Catalan economy would face large transition costs, as the EU accounts for roughly 65.8 percent of Catalan exports.

Furthermore, Catalonia may also face a trade boycott from the rest of Spain.

For Banal-Estañol, this is not a deal-breaker as boycotts have been circumvented by Catalonia in the past.

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People hold Spanish flags and a banner reading 'Government of Spain, comply with and enforce the constitution: article 155 now' during a demonstration organised by the Spanish right-wing party Vox in front of the Spain Government Delegation in Barcelona, on September 6, 2017.

"It is unclear how long a boycott would last, and how strong it would be," Banal-Estañol said.

"Businesses may search for other markets, as they did in the past, during previous boycotts (as in the case of the Cava, the sparkling wine of Catalonia) or during the severe economic crisis in Spain."

Catalonia could also face economic turmoil due to its separation for the European single currency, and increased tariffs on their goods and services. Ultimately though, Catalan nationalists will pay any price for independence, regardless of the economic losses.

"The economic arguments will not be the prevailing ones in the debate over Catalonia's independence," Cuenca said. "The arguments used by both sides appeal to identity."

Correction: This story has been updated to reflect that Catalonia accounts for around 7 percent of Spain's total national public debt.