Thursday, March 30, 2023
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< view full issue: Catalan crisis
Nicolás López

An extraordinary event that puts the European model at risk

M&G Values

The institutional rebellion in Catalonia is undoubtedly an event of extraordinary seriousness that puts at risk the democratic model of coexistence that the immense majority of Spaniards, including Catalonians, had chosen in 1978. The impact on markets has so far been scant, but obviously, depending on how events evolve, the situation could change.

Mundo europa

In the quite unlikely case of a total rupture between Catalonia and the rest of Spain, the consequences for the economy would undoubtedly be catastrophic throughout the country. The Catalonian nationalists seem to think that the only effect of secession would be that the fiscal flows that now go from Catalonia (as in other regions of higher than average income) to the rest of Spain would be interrupted, with so they would have a net gain of about 8,000 million Euros per year.

Obviously, this is a totally unrealistic vision of how complex the flows are in a fully integrated economic zone such as Spain, where there are a complex balance of fiscal, commercial, financial and migratory flows, as well as family, personal, political and social flows, plus a long list of etceteras. Well, if there is something unquestionable, it is that there is a "Spanish economy", a reflection of the existence of Spain as a unified country for several centuries.

The economic model of Catalonia itself is explained from its full integration in Spain. Catalonia has grown economically within an economic structure with a Spanish dimension.

Its economic takeoff occurred precisely in 1714, when we can say that the "Spanish single market" was created, which allowed Catalonian entrepreneurs to expand their market to all of Spain, as well as to the American colonies. Sovereignty is a threat, not only to Spain, but also to the European project itself.


In every country, there are areas in which a significant part of the industrial activity is concentrated, where for different reasons there are better conditions for it. In France, for example, the Paris region (L'île de France) accounts for almost a third of the country's GDP, whist it has 2% of France's territory, and its GDP per capita is almost double the next richest region. However, all that concentrated economic activity cannot be accounted for without the presence of the rest of France.

Would it make any economic sense if the Paris region wanted to become independent from the rest of France on which its economic activity depends?

Catalonia exports goods to the rest of Spain worth 40,000 million Euros annually, 20% of its GDP, with a trade surplus of almost 20,000 million Euros or close to 10% of its GDP. This huge trade deficit of the rest of Spain with Catalonia would not be sustainable between two independent countries. If it has remained this way throughout history, it is because Spain is a country (an economic, political and fiscal union) and there are other flows that compensate this imbalance, among them fiscal and emigratory.

Catalonia's trade surplus compared to the rest of Spain is structural and accounts for around 10% of Catalonia's GDP. The Basque Country shows a more cyclical behaviour and has closed up since the crisis.

From the economic point of view, the integration of Catalonia within Spain is is greater than that of any other Spanish region. 

To pretend that this can be broken without provoking a catastrophic reduction for the well-being of all Spaniards is only possible from the fanaticism displayed by the Catalonian pro-independence politicians these days.

In a sense, the drama of the events of recent days in Catalonia reminds me of what happened in Greece in the negotiation of their last rescue when, until the last moment, they threatened to press the red button of their exit from the European Union. Europe remained firm and in the moment of truth, Alexis Tsipras did not dare to do it because he knew that this implied their country's instant bankruptcy.


Now it is also impossible for the leaders of Catalonia to press the red button for independence, which would mean their exit from the Euro and their immediate bankruptcy. The difference is that the Greek bankruptcy meant something politically and financially acceptable to Europe, while the bankruptcy of Catalonia would take the rest of Spain with it, leaving the only consolation that we would be rescued by Europe. This is to say, the least negative interpretation of what is happening is that the Catalonian government seeks a new negotiation on fiscal issues and self-government from a position of strength. If this were the case, it is normal that once the 1-O is over, a negotiation process can be opened leading to a constitutional reform that closes the conflict for at least a few years.

Personally, I think that the issue of territorial financing in Spain is quite definitely improvable and there is scope for an agreement to be reached. In a sense, we could understand that there is something fair about Catalonia's claims and that the regions that receive funds have to assume a greater degree of responsibility. If they want to manage their own health and education, they cannot simply count on receiving the money of others. This is to say, Spain has a problem with Autonomous Regions that goes beyond Catalonia and that has to be tackled realistically. 

The Autonomous Regions have to understand that Responsibility comes together with Autonomy, and that fiscal solidarity is necessary, but it has to be accompanied by commitments. 

It happens that it is not clear that the nationalists are going to settle for this, and not seek a major change that implies a kind of co-sovereignty that I think the Spanish government could not accept because it would imply that Catalonia would have the advantages of being sovereign and also the advantages of continuing in Spain. In other words, I am "independent for what suits me, but with the advantages of continuing in Spain".

Politically, sovereignty is a threat not only to Spain but also to the European project itself. It would be difficult to explain that the Catalans do not want to share their sovereignty with the rest of the Spaniards and with the rest of Europeans. The pure and hard identity politics that underlies the hard core of the independence movement is quite similar to xenophobia and supremacism.



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