Catalonia in Contention

On September 11, during the eve of the Scottish independence referendum, another Western European independence movement was brewing 1,300 miles to the south. Hundreds of thousands of residents of the Autonomous Region of Catalonia gathered in the streets of the capital city of Barcelona to demand a vote for their region’s independence from Spain. As many as 1.8 million people participated in the demonstration, making it one of the largest the nation has seen this millennium. The historic turnout made at least one thing clear: the lid could no longer be kept on the Pandora’s box of socioeconomic grievances that Catalonians have been voicing for decades. But behind the romantic notions of separatism that have engulfed the Spanish northeast lie a set of concrete, legitimate economic incompatibilities driving the push for an independent Catalonian state.

It is important to acknowledge the plethora of social and political factors associated with the recent spike in the desire for Catalonian independence. These include the region’s long history as a sovereign entity, its own language, spoken alongside Spanish by a vast majority of residents, and its unique culture, which, for example, denounces the popular Spanish tradition of bullfighting as inhumane. But perhaps the most important considerations for the independence movement are the potential economic consequences of independence for the area.

If Catalonia were to form its own sovereign country, its 7.5 million residents would make it the 99th most populous in the world. The gross domestic product of the region—$314 billion—would rank it as the 34th largest economy, with a GDP exceeding those of Portugal, Hong Kong, and Egypt, to name a few. Its GDP per capita, at $35,000, is greater than that of South Korea, Israel, and Italy. It’s therefore likely that an independent Catalonia would fare better than many on the global economic stage. That fact alone, however, isn’t enough to justify outright separation. The relevant question is whether or not the region’s fiscal relationship with the rest of Spain is more of a detriment than a benefit.

A Parasitic Relationship

Leonid Peisakhin, a political science professor at New York University, discussed Catalonia’s economic prospects with the HPR. “Catalonia is the economic engine of Spain in many ways: certainly when it comes to established industries, but also in the service sector,” he said. “It’s just a lot more diverse than many other regions [of the country].”

To give some numbers, Catalonia serves as home to approximately 20 percent of Spain’s total economic activity, and contributes roughly 25 percent of the central government’s tax revenue.

Madrid, however, directs a mere 11 percent of its spending back toward the region. Some officials in Barcelona claim that their constituents pay about $19 billion more to the nation’s capital each year than they receive in return. An economically imperiled Spain has no choice but to redirect some of the revenue from its most booming region toward its struggling ones. Nevertheless, the current system seems to unfairly and ironically punish Catalonians for their relative success. It’s easy to see why 60 percent of the area’s population wants out.

Artur Mas, the region’s right-leaning president, has been pushing for a fiscal pact with Madrid, by which Catalonia would be allowed to collect and manage its own taxes. Spanish officials, however, have been turning a blind eye toward the issue. “Basically what the central government is doing right now is pretending the problem doesn’t exist,” Peisakhin explained. “They are trying to establish tough credentials early on in the negotiations and say that whatever concessions [they] do make won’t be substantial.” Mas has declared that without an agreement, he will be forced to support a referendum on secession.

Even under the current system of tax collection and redistribution, what little money the region does receive from Madrid is invested unwisely. The central government directs funding without consideration for Catalonia’s export economy, which is based largely on small- and medium-sized enterprises. The rest of Spain’s economy, excluding the agricultural sector, tends to rely on large corporations with strong ties to the state. Therefore, business leaders in Barcelona claim that much of Madrid’s spending decisions are politically rather than economically motivated. A popular example is the €41 billion bailout of Bankia, an entity formed through a state-sponsored merger.

If Catalonia wants to reach its economic potential, investment in infrastructure is crucial in order to facilitate international trade. The region is currently responsible for 35 percent of Spain’s exports, including 45 percent of high-tech exports. The direction of state funds toward small-scale firms is also a priority for the city’s commercial elite. Unfortunately, Catalonians can no longer rely on the Spanish government, which has political interests and an economic model different from their own, to invest responsibly in their regional economy.

Dídac Querlat, a political scientist at the Juan March Institute in Madrid, told the HPR that “the Catalonian authorities have reached the conclusion that the promises and commitments that come from Spain are not credible anymore. They [no longer] believe that they can reach a better economic and political agreement [through cooperation with Madrid].” Without control of its own taxes, remaining politically attached to Madrid only hinders Catalonia’s progress as a region.

Even so, anti-separatists point toward the region’s massive debt, the largest of any territory in Spain, as a reason to keep the country unified. While Catalonia’s debt is sizeable, it amounts to only 80 percent of its GDP—less than the EU average. As an independent state controlling its own tax program, therefore, the region would have the ability to gradually repay what it owes. It certainly would not be able to do so with Madrid continuing to siphon off its economic resources.

The EU Question

However, one major reservation many Catalonians still hold is the uncertainty of the would-be new nation’s entrance into the European Union, especially with Spanish officials fervently declaring that they would block its incorporation. The region’s export-driven economy relies on easy access to the markets of other EU member states. Additionally, since 70 percent of imports to the other 16 regions of Spain flow through Catalonia, a healthy economic relationship with Spain is particularly crucial to the area’s commercial success.

But it is exactly this codependence that would preclude the Iberian nation from blocking Catalonia’s entrance into the European Union. Unless an already financially crippled Spain would be willing to pay higher tariffs for goods passing through a non-EU member, it would have no choice but to accept the new country into the union. Furthermore, if Spain refused to officially recognize Catalonia, the latter would carry no responsibility for assuming a portion of the former’s debt (as other nations in the Eurozone currently do). In its current state, Spain would have almost no hope of reducing its more than $1 trillion debt without its economic powerhouse. Transferring some of its financial obligations to Catalonia—and thus recognizing the new state—would be critical to Spain’s own self-interest should the region break away.

Moreover, many other EU powers have a stake in Catalonia’s quick entrance into the union. Over half of Germany’s investment in Spain, for example, is directed toward Catalonia. Berlin surely would like to avoid exchange fees in its transference of capital to Barcelona. Furthermore, even if Catalonia were initially unable to enter the EU after secession, the effects, according to Queralt, would not be catastrophic. “There are many other countries with close ties to the union, who have various trade agreements and pacts. In the first couple of years, the GDP would drop,” he acknowledged, “but only by maybe 2 or 3 percent.” Queralt, like many in Spain, speculates that the EU member states wouldn’t allow Catalonia’s absence from the free trade zone to persist for more than a few years.

Nevertheless, Catalonia’s potential membership in the European Union is far from guaranteed. Application to the European Union requires adherence to complex set of political and economic regulations as well as a unanimous approval by member states. Although no nation besides Spain presently appears intent on blocking an independent Catalonia’s entrance into the union, a variety of economic and political factors could motivate such action. For instance, a country might aspire to move into the market space once occupied by Catalonian firms. Even so, Catalonian leadership evidently feels confident that the interests of the entire continent would encourage a smooth transition into the Eurozone for the nascent nation.

A Forced Detour

A consideration of the economic rationale behind the growing sentiment for Catalonian independence, without even delving into the wide array of sociopolitical concerns in play, is enough to see why many in the region want secession. Understandably, however, Spain won’t easily let go of 16 percent of its population and one-fifth of its GDP. Central authorities have been resisting regional officials’ call for a November 9 referendum on independence. They claim that the maneuver would be unconstitutional and plan to block it in court.

Queralt proposes a likely solution: “The [Catalonian] government would call for a new regional election, which is completely legal and constitutional. The parties that favor secession would add the statement in their party manifestos, and so people would know that by voting for these parties they are voting for secession.” Queralt calls the method “imperfect,” but says it’s an acceptable alternative to calculate the popular support behind the independence movement.

The droves of Catalonians who occupied the streets of Barcelona on September 11 weren’t just there for show. It’s becoming clear that the secessionist movement that has long been building in the Spanish northeast is reaching its boiling point. In recent months the region’s leaders have demonstrated focus, determination, and a strong case behind their cause. The very foundation of liberal democracy is the citizenry’s right to abandon a government that fails to serve their interests and construct another, more effective one. There are few better contemporary examples of such a situation than Catalonia’s one-sided economic relationship with the central Spanish government. Whether they decide to stay or to leave, therefore, Catalonians should at least be given the power to choose their own fate.

By Ali Hakim

Image source: The Guardian

Source: Harvard Political Review