Catalonia: Secession Winds In A Modern Democracy

When regional Catalonian president Carles Puigdemont read the unilateral declaration of independence from Spain approved by the region’s Parliament on October 27, the whole of Europe held its breath. What started as an intramural dispute for political control in Spain, rapidly evolved into the country’s gravest constitutional crisis since the 1930s and Europe’s latest threat to economic and political stability. Just hours before Catalonia’s move, the Spanish Senate had approved the application of article 155 of the constitution that allows the central Government to take direct control of the rebellious region, and Prime Minister Mariano Rajoy had called for fresh elections in Catalonia. How did we get here? Was all of this necessary? Who is to blame? On whose side is history? And, most importantly, what next?

Start with history. In the 17th century, after a brief annexation of Catalonia by the French, the Catalonians, frustrated with the economic and political dictates from Paris, returned to the Spanish Crown. When King Charles II of Spain, nicknamed “The Haunted”, died in 1700 leaving no heirs, France and Austria claimed the right to anoint a successor and dragged the rest of Europe into a war for the control of the Spanish crown. England and the Netherlands supported Archduke Charles of Austria, with most of the rest of the continent siding with Phillip V of Bourbon, grandson of Louis XIV. Castile, Aragon and most of the Spanish provinces favored the French “dolphin”, who represented the interests of the aristocracy and the physiocratic classes of clear protectionist bent, while the Principality of Catalonia leaned towards the Austrian royal, more associated with the emerging merchant classes and the Anglo-Dutch free trade ideas. In the end, after a bloody war that brought destruction to Barcelona and lasted until 1714, the French prevailed and Phillip V became the new king of Spain. Most historic accounts agree that Catalonians, despite initially backing the Austrians, supported the new king, who gave Barcelona a free port with commercial rights to trade and send ships to North America, and enthusiastically celebrated in the streets the day Phillip swore to defend the constitution before the Catalonian Courts. At any rate, this was not a Secession war as today’s independent parties in Catalonia argue, but a Succession war involving most of Europe, where Catalonia was just the battle ground. Far from being a civil war for the independence of Catalonia, this was a European war for the control of Spain.

Since then, Catalonia has been part of the Spanish territory and one its most prosperous and advanced regions from an economic, social and cultural perspective. Nationalist movements favoring greater autonomy re-emerged in the XIX century, with a focus on the right to use their language and more economic decentralization, but never got too far. In 1931, the Second Spanish Republic was proclaimed and the Government returned Catalonia to an autonomous region, including the right to use Catalan in schools and official documents. However, after the Spanish civil war in 1939 General Franco abolished all the autonomy granted to the region and central control in Madrid was re-established. While Catalonia continued to industrialize and prosper during the Franco dictatorship, Catalonians lived under great cultural oppression until his death in 1975. With the return to democracy, a new constitution was approved in 1978 with the support of the overwhelming majority of Spaniards. Over 90% of Catalonians voted in that referendum, the highest turnout in the country, and only 4% rejected the new constitution. Significantly, the 2.7 million Catalonians that voted for the constitution in 1978 surpasses the 1.9 million in favor of the independence parties in the regional elections of 2015, and the 2.3 million that, according to unverifiable numbers of the independence movement, voted to secede from Spain in the illegal referendum called by the Generaliat (Catalonian Autonomic Government) on October 1, that led to the current crisis. The Spanish constitution of 1978 is that of a federal state with a high degree of autonomy for all regions (called nationalities in the text), and was modeled largely on the German constitution thanks, in no small part, to the influence of the Catalonian representatives. It also includes the famous (or infamous) article 155, that grants the right to the central Government to take control of any region that acts against the interest of the whole country, and which had never been used in the last 40 years until it was triggered last week. A similar disposition exists in most constitutions in Europe, and its purpose is precisely to ensure the indivisibility of the country and prevent regions from trying to separate without the consent of the majority of the population.

While Catalonia was one of the architects of the Spanish constitution and the region bloomed under its framework, Catalonians pressed for greater autonomy and a new Autonomy Statute was approved in 2006, granting the region more control over the judiciary, taxes and public spending. Unfortunately, part of the new statute was struck down by the Spanish Supreme Tribunal in 2010 following an injunction by the Popular Party of Mr. Rajoy. This created profound resentment among many Catalonians not just against Spain but against the governing party, and gave rise to the current independence movement. The discontent was compounded by the economic and financial crisis of 2008/2009, that had devastating consequences for Spain, and disproportionately impacted Catalonia. Only last month, exactly nine years later, did the country recover the number of people in jobs that it had at the start of the crisis, and its GDP fell by 9.2% between 2008 and 2013 before it started to recover.

Over the last 10 years, the separatist movement has succeeded in convincing many Catalonians, though probably not the majority, that under the current system of transfers the region contributes in taxes to the rest of Spain much more than it receives, and that they would be much richer as an independent country, part of the European Union. This economic argument is far more important than all their cultural and historic claims to be an independent nation. Alas, it is based on a number of fallacies. Firstly, even if Catalonia became an independent country it is far from certain that it would be able to join the EU. Under the EU treaty, if a region becomes an independent country it has to apply for membership and has to be approved by consensus and follow the established process. This means Spain and the rest of Europe would have to support Catalonia’s accession, which seems highly unlikely especially if independence is declared unilaterally. Many European countries fear a contagion effect and no country has expressed any sympathy with the independent movement in Catalonia. Secondly, the secessionist movement has argued that Catalonia contributes 8% (percentage points) of its GDP more than it receives from the rest of Spain. There are as many ways of calculating this shortfall as there are economists in Spain, but the most serious estimates on both sides put the net transfer from Catalonia to Spain at around 4% of GDP, with significant variations depending on the phase of the economic cycle; namely, the net transfer is higher during economic booms and much lower during recessions. In any case, this contribution is part of the principle of solidarity on which federal states are founded, and is less than half that of Madrid, the country’s capital. It is also comparable to the solidarity contribution of the Lombardy region in Italy, and the transfers of Baden-Wurtemberg to the rest of Germany, and based on the same principle of progressivity of the transfers from the richer states of the north in the EU to the poorer south, of which Spain and Catalonia are significant beneficiaries. Thirdly, the idea that Catalonia would be richer outside Spain defies economic logic. In fact, given its high dependence on trade with the rest of Spain and the loss of investment that would follow its establishment as a separate country, the economic cost would likely be high. Estimates from the Ministries of Finance and Foreign Affairs in Spain put such cost at between 20% and 25% of GDP. While the numbers depend largely on the assumptions about access to the Spanish and EU market and the continued use of the Euro, and they may well be exaggerated, there is little doubt that an independent Catalonia would go through several years of significant economic hardship.

It is true, however, that public investment in Catalonia is well below what corresponds to its economic importance, and was disproportionately reduced by the Government during the recent economic crisis (37% reduction in the whole of Spain compared with a 58% cut in Catalonia). The question is whether such distortions cannot be corrected by negotiations and perhaps a return to the precepts of the 2006 statute of autonomy, without seceding from Spain. The answer should be obvious, but the fact that it took a constitutional crisis of such proportions to bring all the grievances to the surface shows that there is guilt aplenty on all sides. While the declaration of independence was illegal, against the constitution and unfounded from an historic perspective; and the Spanish Government is acting within the law in applying article 155 to take direct control of the regional Government in Catalonia, having the law on your side is only part of the answer in situations like these. The political sensibility, an adequate communications strategy, a willingness to listen and an extended hand to negotiate, are all fundamental to gain the active support of the people and win in the court of public opinion. Regrettably, they have all been absent from the strategy of the Spanish Government. The majority of Catalonians probably still prefer to be part of Spain than embark on a secessionist adventure, but you wouldn’t know looking at the demonstrations by students and separatists in the streets of Catalonia or the images of the Spanish police dragging people in the streets of Barcelona to prevent them from voting in the referendum of October1.

What comes now depends on how both parties manage the situation and how people react to the political crisis. With the powers conferred by article 155, Prime Minister Rajoy has dismissed regional president Puigdemont as well as the head of the local police, dissolved the Catalonian parliament and called fresh elections for December 21st. Polls after the measures were announced (and a huge demonstration in Barcelona on October 29 in favor of elections and unity), indicate that the majority of Catalonians support the call for elections. Mr. Puigdemont may try to preserve his authority by establishing a sort of parallel Government, and promote civil disobedience of Catalonians against the Spanish authorities. The chances of such strategy working for long are slim, but the risk of confrontation, perhaps even violence, and chaos is latent. In the meantime, the Catalonian economy has started to pay a heavy price for the uncertainty: by some accounts, close to 1000 companies have changed their legal domicile and headquarters from Barcelona to Madrid in the past three weeks; and, “tongue in cheek”, the Madrid authorities have validated the transfer with a simple decision by the Board of Directors of each company, without requiring a shareholders meeting.

Spain is a mature democracy where the rule of law is applied and respected, and memories of the Franco years, let alone the civil war, still send shivers through most of its citizens. That is, perhaps, the best guarantee that, whatever the outcome of this crisis, it will be civil, democratic and peaceful.

Jaime Ardila
Hawksbill Group