Economic Aspects in National Independence Debates: The Cases of Scotland and Catalonia Dr Krzysztof Winkler Poznań 2016 1
Preface Taking responsibility for their own country is a dream for many nations in every part of the world. In every case economy plays important role in program of independence. Leaders of these movements understand that without solid economic framework they will not be able to create strong country feasible to survive in the world. Lack of strong economy means that all efforts made by them are going to fail, because one of their target is to improve the level of life of people in the new state. They should have better life conditions because in the old country they often are discriminated by dominant nation. Sometimes the control on the economy is presented as crucial argument in the discussion about future of certain region. Most common argument is that in old country province which want to be separated from the rest of the country is underfinanced or even exploit by central government. Financial sources are transfered from it to the other regions of the country and they are not used to built welfare of secessionist region. Economy is an important area where conflict between secessionists and old country is played. It is more important where there are no arm conflict and all discussion takes place on the ground of politics. Then economic slogans and facts play dominant role in the debate. In the case of Catalonia and Scotland economy is very important because they are examples of debate about independence where there is no arms conflict. Discussion is made on the political basis. In case of referendum arguments about future of new states economy are important. It is connected with currency, level of taxes and revenues to the state budget and future structure of economy in the new state. Both nationalist parties in Catalonia and Scotland declared that their economy would be open and willing to trade with the rest of the world. One of their aim is to be a part of the EU as important part of their economic plans. They accused central governments of lack of interesting of the local economies. After creation of their state they proposed investments in local economy and support for business. Catalan nationalists stated that Spanish government takes much more in taxes then Catalonia receives from budget. After the independence all revenues which come to the Catalan budget could be used to develop local economy. In Scotland new government could create special fund which sources could come from revenues from oil and gas. This fund could be used to develop Scottish economy. These are arguments presented by separatists. On the other side are central 2
governments and those who don t want to go out from old countries and think that it is much better to be a part of the big state then have small one. There are bigger opportunities to economic development and is easier to get fund to investments. They argue that bigger economies are less exposed to the problems than small one, Another fact is that recently in EU the biggest states have the dominant position. It could mean that after the independence new state would be again subordinated to the bigger actors in Europe. Catalonia First case that is going to be examined is Catalonia, currently Spanish region. In the middle ages Catalonia was a sovereign state which was united with Aragon. Than in 15th century Aragon and Castile united and created Spain, Catalonia became part of this state. Initially it had its own institutions but in 18 th century they were scraped and central Spanish rule was introduced. The Catalan identity was renewed during the 19 th century along with demands of political autonomy or even separatism. The slogans of autonomy were realized in 1930 s when Spanish republic were created. This period of autonomy lasted until the end of Spanish Civil War. During the Franco rule Spain became a centralized state, and Catalonia lost its autonomy. It got the autonomy again when democracy was established in Spain in 1970 s. Catalonia has its own parliament and regional government. The problem of independence became a real issue after the 2008 global crisis when Spain was hardly hit. Recovery became long and hard so some politicians in Catalonia became thinking of independence as a solution for the region problems. Catalan economy is open and performed better than in other parts of Spain. Even after the 2008 crisis economy indicators were better in this region. It is traditionally an industrial and economic powerhouse of Spain 1. The region has also long traditions in trade not only in the Mediterranean area but also to the rest of the world specially South America. Barcelona is one of the biggest harbours in Europe. In 2015 two groups of independence forces gained power in local parliament. In 2014 they made an independence referendum which was unofficial. Only 40% of eligible voters took part in that voting, 80% of them declaring themselves for independence. That vote was 1 Why Catalonia s bid for independence is Europe s next headache, http://www.telegraph.co.uk/finance/economics/11849126/why-catalonias-bid-for-independence-is-europesnext-headache.html, access: 19.06.2016 3
strongly opposed by Spanish government. In 2015 local elections the independence parties won 72 seats from 135, but they did not get above the 50% of votes. They got 1,9 million votes from 4 million ballots cast 2. That result mark that they didn t achieved their goal to get most of the votes. Despite that they wanted to start the process of getting the independence for the region. It could be hard, taking to the consideration the negative position taken by the Spanish government. During the discussion about future position of Catalonia, economy plays important role and arguments on that issue are used by both sides of debate. The pro-independence side says that Spanish government robs Catalonia from its revenues and directs them to other regions. That is the reason why local government has to raise taxes and cut public spending. Secessionists parties declares that after independence Catalonia could be free from problems made by Spain, so this could give Catalonia possibility to improve its welfare 3. Unionist side says that these propositions are not the right source of Catalonian economical problems. They pointed that during the 2008 crisis all Spanish economy was hit severely. The problems had their source in falling economic activity and smaller revenues not only to the central government but also to the regional ones. The expenditure of Catalan local government are bigger than in other parts of Spain. Arguments about unfair treatment by central government is seen by unionist side as a way to find an easy explanation of the current economical problems. Secessionists positions are strengthening by the size and structure of Catalan economy. It is Spain industry powerhouse and trade region. Catalonia GDP is worth 314 billion USD according to the OECD which makes it 34 th largest economy in the world 4. GDP per capita was worth 27,698 average for EU was 25,500 Euro. It accounts for 18,8% of Spanish GDP while Madrid accounts only for 17,6% 5, it makes it one of the wealthiest Spanish region. Catalan share in Spain export is 26%, 65% of these export goes to the EU markets. Barcelona 2 Catalonia vote: pro-independence parties won elections, http://www.bbc.com/news/world-europe- 34372548, access: 29.06.2016 3 The political economy of Catalan independence, http://www.ieemadrid.es/userfiles/otrosinformes/the_political_economics_of_catalan_independenc E.pdf, accesss: 30.06.2016, p. 11 4 Why does Catalonie want independence from Spain, http://www.telegraph.co.uk/news/worldnews/europe/spain/11179914/why-does-catalonia-wantindependence-from-spain.html, access:30.06.2016 5 Why does Catalonia want independence from Spain, http://www.telegraph.co.uk/news/worldnews/europe/spain/11179914/why-does-catalonia-wantindependence-from-spain.html, access:30.06.2016 4
is one of the most important harbours in the Mediterranean area. Catalonia has good road network and railway connections with rest of Spain and France 6. It has long traditions in international trade. The structure of Catalan economy is typical for advanced economies: services contributes 69,6%, industry 20,9%, construction 8,9% and agriculture 1%. This is rather diversified economy, it could perform well in case of independence of course on certain conditions. Industry has some modern sectors like chemicals and pharma 22% share in its industry, metal and machinery with exactly the same share in the size of industry, food and beverages 12%, transport material 11%, paper and graphics 10%, electric and electronic 7% 7. Production made in Catalonia is rather modern so it is possible to get revenues from these trades. Tourism sector is also important part of the local economy 11% of population works there and brings remarkable profits for local administration. Employment is biggest in service (73%), than industry and construction (25,1%) and agriculture (1,4%). With these facts it is natural that local government in the beginning of crisis looks for solutions to improve the welfare of its citizens. Catalan leaders said that without payments for other parts of Spain their province would perform better. There are of course some conditions of these propositions. First and most important, there should not be any obstacle for Catalan trade to Spain and rest of the EU, second that region should became a member of EU in short period of time after the secession. Third condition is that, there should be a plan how to manage the economy between secession and entering the EU. To fulfill these conditions new Catalan state should negotiate with Spain and secession should have the permission from Spanish administration. When it is unilateral decision, then Catalan situation could become much worse and all plans could not be realized. Unionist parties arguments, that statements about the sources transferred to the rest of Spain are false. They said that there are many facts that should be considered before the decision about independence is taken. In fact economy is the most important argument used by secessionists. Other issues like national identity or problems with Catalan language are less important. Recent economical problems are blamed in reports for rise in the support for Catalan independence. This kind of explanation could be true, due to rise in the level of support for independence 6 Catalnia vote/economy, http://www.cataloniavotes.eu/en/background/about-catalonia/economy/, access:30.06.2016 7 Catalonia vote/economy, http://www.cataloniavotes.eu/en/background/about-catalonia/economy/, access:30.06.2016 5
from the beginning of current financial crisis. In the past Catalan separatism was present but on the lower scale. Economy became central part of the independence debate due to 2008 financial crisis. In different situation the same slogans did not change the support for Catalan state. In this debate about new state economy prove to be useful tool for separatist movement. With strong and diversified economy it looks like that it is possible to create new country which could perform well in the international markets. Of course there are some conditions and without fast accession to the EU chance for bright future are weak. Inside Spain Catalonia could get necessary funds for investments and as unionist side states that some problems are not made by Spain but by local authorities. Secession is not the right solution for the problems with roots in economical recession. Scotland Scotland is in different position, because it had its independence referendum in 2014. Most voters rejected the idea of sovereign Scotland, 55% voted for staying in the UK and 45% for secession from it. As in Catalonia economy played an important part during the campaign. Both sides used economical arguments (during campaign). Scottish National Party said that after the secession Scotland could perform much better than inside UK. Special place in SNP program was taken by revenues from oil and gas as source of Norwegian style wealth fund, but in that case there are many problems that undermined use of economy as an argument for sovereign Scotland. Catalonia is powerhouse of Spain economy, it has well developed industry and service. Many branches of Catalan economy are modern and could trade on the international market. In Scotland the situation is more complicated. Its economy is concentrated on few branches. It has less privileged geographical position that Catalonia. Scotland is on the north side of UK and is on the island. It has open economy but closely tied with rest of the UK. Scotland gets much more from the UK than gives back. The union was designed to protect England north border from attack and to give Scotland way to colonial markets. England pays for the union to Scotland. That deal still exists. The public expenditure in Scotland is by 10% higher than in other parts of UK according to the Scottish devolved administration. That is 11,785 GBP per head for Scotland and 10,663 GBP per head for the UK in 2011. In 2013 these figures were 12,300 GBP per head and 11,000 GBP per head respectively. The sums of money transferred to Scotland are based on the Barnett formula. 6
This formula has existed from the 1970. There are discussions in the UK about the future of this formula and how it could be changed to be more just for all parts of the UK but as the issue is complicated it could take a long time to make changes in present mechanism. Scotland economy has different structure than Catalan one. It contributes only 8% to the UK economy. The biggest part in Scotland s economy is service sector which accounts for 61%, manufacturing for 9%, construction 6%, mining and quarrying 21% and 1% agriculture 8. Scotland s GDP was 154 bln Euro in 2013 according to the Eurostat 9. These data indicate that services are important for condition of Scotland s economy, manufacturing sector is small and focused on the oil and food production. Mining sector, provides important part of Scottish income. As the oil prices in recent month are volatile it is impossible to make an oil sector the fundamental branch of Scottish economy. When we examine the Scottish economy it is useful to look what are its main export assets. There are food and drink sector (17,6%) and petroleum and chemicals (15,3%). Other branches are: computer, electronic devices (6%), finance and insurance (5,9%), legal, accounting and management (5,8%), wholesale, equipment repair and retail (5,7%). The structure of Scottish export indicates that it is composed with traditional production with important role of food and petrochemical ones. The level of unemployment in Scotland is slightly lower than in the rest of the UK, on the level of 6,4% and rest of the UK had 6,8% 10. Scottish economy performs well but has some disadvantages like big banking sector, which could be unstable and not sustainable if there are such troubles on the markets like in 2008. Like in Spain, Scotland separatists movement sees the future of its country as sovereign one. According to the position taken by them its economy should be better outside UK. That is not so certain and during the campaign before the independence referendum there were many arguments against that statement. The unionists pointed the level of oil prices, position of Scottish firms, relationships with the rest of the UK, than EU membership as 8 Scotland referendum 2014: the impact of independence on teh UK economy, http://www.parliament.uk/business/publications/research/scotland-the-referendum-andindependence/impact-on-uk-economy/#jump-link-4, accessed: 06/07/.2016 9 Scotland, https://ec.europa.eu/growth/tools-databases/regional-innovation-monitor/base-profile/scotland, accessed 06.07.2016 10 Scotland the referendum and-independence/impact-on-uk-economy http://www.parliament.uk/business/publications/research/scotland-the-referendum-andindependence/impact-on-uk-economy/ 7
possible source of problems for sovereign Scottish state. These issues are examples of issues pointed by unionists. In 2016 Scottish National Party won devolved elections but lost the majority in Scottish parliament. That could make next referendum much more complicated. Constitutional matters are reserved for UK Parliament. If separatists want to have another referendum they have to get permission from London. After the Brexit vote it could be very difficult. Economic arguments were the most important during the campaign made by SNP. Other issues like Scots language or national history are less important. The EU membership is also important for SNP, but there is significant change in the climate inside the European Union. The most important decisions are made by the biggest countries like Germany or France, the interests of smaller nations are subordinated to the biggest ones. The regions like Scotland could be in difficult situation during discussions with the EU. Assumption that EU will support the regions could not be real. Scotland separatists used similar arguments as Catalan ones. They said that Scotland could be better as sovereign nation due to concentration of sources only on the Scottish economy. This could not be true taking into the account complex dependence between nations. Main issues of both economic debate Both regions Catalonia and Scotland will face the same kind of problems. for both of them currency for sovereign state, revenues for budget, credit rating on the international markets, amount of debts which should be taken by new country is an important issue. The problem of new currency is complicated in both cases. In Scotland there was proposal to preserve the Pound but British government rejected this option. In that case Scotland should adopt new currency or preserve the pound on the basis on declaration given by Scottish government. In this case they would not have tools to influence the policy of Bank of England. Its decisions would not take into the account Scottish position. Both situations could be difficult in short term to sustain economy. Similar situation is in Catalonia. Proposal of eurization is not the good option, due to many obstacles that would appear like new Catalan central bank would not be the member of ECB system. In the result of this position it would 8
have no access to the standing facilities of the ECB 11, they will be excluded of being counterparties for the ECB. In that situation many firms will move their bases form Catalonia to other parts of Spain or other countries that are members of the EU. They would want to avoid problems with bond issues by Catalan central bank and troubles with payments, so in this case new state has to adopt new currency. Second issue are revenues for new budgets. Whether tax levels are raised or not, what could be the biggest resource of revenues. All these questions are to be answered in practice, detailed analysis made by both sides of debate will be verified by real life and solutions which could be introduced depend on final shape of agreements between separatists and central governments and situation in their economies. SNP plan to get revenues from oil production is in doubt due to last volatility on the world oil markets. The revenues will depend on the state of economy after the secession. Their level is hard to predict due to many facts like world economic situation or EU negotiations. These theories could be properly verified, only when one of these nations became sovereign. Credit rating certainly could be worse than in old countries as the new ones will not have long period of borrowing in the world markets. The trust from investors will be in natural way limited. What is a little bit more predictable are the level of debts that could be adopted by new countries. In Scotland the debt level varied from 52% to 66% of GDP, which is a big sum for small economy. In Catalonia it is predicted between 52% and 103%; the level of debt depends on the results of negotiations with Spanish government. There are many ways to share the debt: share in the GDP of new state, share in the number of people, final amount depends on how these problems would be solved. In Scotland and Catalonia economy plays important role during the debate about possible independence of these two regions. There are arguments for and against the sovereign future of them. But when we consider the independence, there are many facts that could be unpredictable. One of them, important to both movements, are the position taken by 11 J.L.F.Higueruela, A. de la Fuente, G. Lopez-Casasnovas, J. R. Villalonga, C. Polo, The Political Economy of Catalan Independence, http://www.ieemadrid.es/userfiles/otrosinformes/the_political_economics_of_catalan_independenc E.pdf, access 11.07.2016 9
EU. Both nations want to became members of the EU as quickly as possible. Being a member of EU is seen by separatists in both regions as solution to all economic problems that could appear after the secession. It is hard to say if it is possible. EU has already big troubles with eurozone crisis. There are many other crisis like migrants or latest connected with Brexit. This could make the effort for EU membership harder than anyone could predict. Conclusions Both Scotland and Catalonia used economy as one of the most important argument for independence. Economists that support the independence case point that both nations could perform better as sovereign ones than as parts of bigger states. They said that despite of problems that appear after the secession their economies could overcome them and in short time develop fast. Using these arguments they often do not mention the worse scenarios in which the debt level is higher due to share in old state ones or revenues are not as big as they thought. Many times, and that refers to both sides of debates in UK and Spain, arguments presented by them are one sided do not show the whole situation. In effect the people could not get the proper view of complex problems. To make case even more complicated many assumptions could prove false due to external problems like world economy crisis or EU problems which could make some expectations unachievable. It is an interesting issue if Scotland or Catalonia are ready to became sovereign state at any cost. Scottish referendum in 2014 gives the hints that Scotland is not ready for this. In Catalonia the results of non-binding one proved that Catalans want to be a sovereign state but in binding one the results could be different. The debates play on the emotions so many arguments not suit to the world of hard economy. European situation is complicated due to many crisis that still need to be solved on the national and EU level. Even solution of these problems will not diminish the important role which economy has in the dispute about the future of these nations. 10