Catalan Business

Feeling the Pain in Spain

People wave Spanish flags during a pro-union demonstration organised by the Catalan Civil Society organisation in Barcelona
If German companies were people, they would be there too, demonstrating for a united Spain. Source: Reuters

It would be a major setback for carmaker Seat if Catalonia were to secede from Spain. The Volkswagen subsidiary has three major factories in the wealthy northeastern region, and is among the most important German investments in Spain. Seat just returned to profit last year, after a long period in the doldrums. Secession could mean Catalonia’s withdrawal from the EU, leading to crippling tariffs.

Officially, Volkswagen has nothing to say on the situation. It is a tense stand-off: Catalonia’s president, Carles Puigdemont, may declare independence as early as Tuesday evening. As far as Madrid is concerned, he is leading an unconstitutional breakaway based on an illegal referendum. According to the Catalan government, 90 percent of participants voted for independence in the referendum on October 1, with 2.3 million of the region’s 5.3 million registered voters casting a ballot. The controversial poll was marred by violence as Spanish police tried to prevent the vote from taking place.

German Chancellor Angela Merkel knows which side she’s on: On Saturday, she telephoned her Spanish counterpart, Mariano Rajoy, to express “her support for Spanish unity.”

But the many German companies in and around Barcelona are keeping a much lower profile. Some could vote with their feet. Several Spanish firms have already decided to move their headquarters to other regions, less likely to unilaterally declare independence in the foreseeable future. Walther von Plettenberg, head of the German chamber of commerce in Spain, says many firms are freezing investment: “New investment is on hold, all this could affect plans for new buildings or for expansion of production in Catalonia,” he said.

“Companies need legal stability, not just in the short term, but for 30 or 40 years to come.”

Albert Peters, chairman of the Circle of German Executives in Barcelona

Albert Peters, the president of the Circle of German Executives in Barcelona, agrees: “In the past week, 20 different German companies called me to ask what they should do.” They raised tough questions about where to base their Spanish headquarters, he said: “Companies need legal stability, not just in the short term, but for 30 or 40 years to come.”

The region around Barcelona is home to around half of the 1,600 German companies with a Spanish presence, according to the BDI, the Federation of German Industry. “If the region leaves Spain it will mean a radical break on both sides. The economy there depends heavily on exports and this will lead to real uncertainty,” said Joachim Lang, the director general of the BDI.

Few German companies will be as directly affected as T-Systems, a subsidiary of Deutsche Telekom, whose Catalan chief was arrested two weeks ago, on suspicion of assisting with the electronic logistics of the referendum. Federal police detained Rosa María Rodríguez Curto and searched the company’s head offices in Barcelona, seizing her computer and documents from her office.

Ms. Curto was eventually released with charge, but the incident could have been potentially embarrassing for the German government, which remains Deutsche Telekom’s largest shareholder, with a 32-percent stake. Similar accusations were directed against the company in a previous referendum two years ago. Madrid is unlikely to be happy about a firm part-owned by the German state cooperating with a regional government that it says is defying the constitution.

10 Economic Contact with Catalonia-01

Among German firms, the greatest worries are found among industrial companies with production facilities in Catalonia. Thomas Koetzing, executive vice president of machine builder ProMinent, told Handelsblatt: “I see problems with possible tariff barriers, both for importing components and for exports to Spain and the EU.” ProMinent owns two Catalan subsidiaries.

Germany’s chemical and pharmaceuticals industries are heavily represented in Catalonia. Bayer’s pharma subsidiary for Spain and Portugal is based in Barcelona, Spain’s second-largest city. BASF, the world’s largest chemical producer, also has its Spanish headquarters in Barcelona, as well as several factories in Tarragona, southern Europe’s largest center for chemicals production, 50 miles south of the Catalan capital.

A Catalan declaration of independence would have massive repercussions for these companies. Officially, no one wants to talk about it. Sources close to the companies say it is far too early to take a public position. “It’s not an emergency,” said an executive at one of the German chemical companies: “We think there’ll be a political agreement.”

Seat, which employs 15,000 staff in Catalonia, is surely also praying for a deal. “You can’t just move a car factory, like a bank can move its money,” one Volkswagen manager at company headquarters in Wolfsburg told Handelsblatt. He was referring to recent reports that two large Catalan banks, Sabadell and CaixaBank, have taken steps to move their head offices out of Catalonia.

“Our Spanish headquarters is in Barcelona, and we’re staying there.”

Media Markt spokesperson

German retailers in Catalonia are under less pressure than industrial corporations. Big companies like Aldi, Lidl and Media Markt do not produce goods for sale outside the region, so would not be hit by tariff barriers. “Our Spanish headquarters is in Barcelona, and we’re staying there,” said a spokesperson for Media Markt, which has 83 branches in Spain, of which 14 are in Catalonia. The electronics retailer refused to comment on the political situation.

That situation is hitting smaller firms too. Arndt Rautenberg, founder and managing partner of Rautenberg & Company, a Düsseldorf-based corporate finance boutique, says he fears for the future of startups in Barcelona. If prominent startups begin to move out, there could be a snowball effect, he says. His firm recently invested in the local startup Pushtech, a mobile marketing services provider.

Even if there is no immediate secession, the problems caused by the crisis will not easily be solved. Divisions have deepened in Catalonia, and between Catalonia and the rest of Spain. “No matter how this crisis ends, there will be no peace in Spain for the next two years,” said Mr. Peters, who leads the forum for German executives in Barcelona.

One Spanish manager of a German firm tells of goods already being returned from elsewhere in Spain: the “Made in Catalonia” sticker made them untouchable. Any serious boycott could cause serious headaches for executives in Catalonia. The rest of Spain has so far shown no patience with Catalonia’s flirtation with separatism.

BDI director general Joachim Lang has demanded that “both sides treat each other with respect.” Only serious dialogue can “pacify the situation,” he added.

Handelsblatt reporters Bert-Friedrich Fröndhoff, Sandra Louven, Stefan Menzel, Anja Müller and Georg Weishaupt contributed to this article. It was adapted into English by Brían Hanrahan and Jean-Michel Hauteville for Handelsblatt Global. To contact the authors: louven@handelsblatt.com, hauteville@handelsblatt.com.

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