Catalonia is awaiting snap elections. Candidates for the regional parliament and presidency are taking care of the final preparations. Tonight at midnight, they will launch their campaigns. Economic arguments for and against Catalan independence are expected to take centre-stage in the upcoming fifteen days. Here’s why both sides make sense, but only to a certain degree.
Political unrest is not good for business. Since the independence referendum of October 1, thousands of companies have relocates their social headquarters out of the region. The very idea of suddenly falling under the micro constitution of the Republic of Catalonia scared them off. They did not sign up for that. These companies prefer the stability that the Spanish law provides. To be able to continue operating as they do, they need to maintain their Spanish judicial identity. The same reasoning goes for the financial institutions that have left Catalonia since the referendum.
The unionist political bloc – the Catalan fraction of the Popular Party (PP), the Socialist Party of Catalonia (PSC) and Citizens (C’s) – are seeking to pacify these disturbed companies and banks, and keep foreign investments coming, by upending the ‘secession process’ ASAP. Winning a parliamentary majority of 68 seats on December 21 and forming a coalition government would empower them in keeping independence tensions at bay.Election forecast by the Center for Sociological Investigations (CIS), visualized by El Periodico
Meanwhile, the separatist parties – the Republican Left of Catalonia (ERC), the Candidacy of Popular Unity (CUP)and Together for Catalonia (JuntsxCat) – are determined to proceed with the separation process. These political rivals all have varying views on the preferred final shape and form of the republic, and on how it should be established, but if there’s anything they do agree on, it’s their promise to create a Catalan state with its own constitutional and economic system.
Why? Because the citizens of Catalonia pay more taxes than in most other regions of Spain, and that’s clearly unfair. Because the money that gets transferred back to the community in the form of public investment is only a fraction of the sum contributed, with the estimated deficit ranging from €9.000 to €16.000 million. Because Catalonia owes a huge debt to the state, €52.000 as of 2016. Because more corruption cases are surfacing around the unpopular Popular Party (PP) – it’s the largest party in Spain, but only the fifth in Catalonia –, and who would want to be represented by such criminals?
There’s clearly a perfect mix of ingredients present for narratives that portray independence as a way out of a miserable situation. But is Catalonia actually better off without Spain, economically? No? Yes? The answer is: neither. And it’s time to acknowledge that. Here’s a start.
“SPAIN ROBS US”
Reason to leave #1: a fairer tax system
In Spain, richer communities pay larger amounts of taxes. As is the case in many countries. If you earn €8 billion a year, you pay more taxes than someone with an income of €80.000. Unless, maybe, if your name is Apple, Nike or Uber. However, it’s not necessary to leave Spain over the tax deficit. Political support for reforming the fiscal contract between the Generalitat of Catalonia and the central government of Spain is growing, recently even among unionist politicians, with socialist candidate Miquel Iceta at the forefront. Catalonia may be able to negotiate an accord that would give the Generalitat the right to collect and redistribute most of its tax payments, as the government of the Basque Country already does. Such negotiations would dissolve the tax dissatisfaction with much less hassle than independence.
Reason to leave #2: no more debt
Spain serves as a creditor to its endebted autonomous communities. It helps them recover from their regional deficits by lending them money. That’s how Catalonia has indebted itself to the state. Unilateral independence could unburden Catalonia of this debt, as well as its share of the national debt. The constitution that was recently drawn up to regulate the process toward an independent Catalonia conveniently does not make any promises regarding the repayment of lent money. But if Catalonia will be left off the hook, or ratherleave itself off the hook, in this matter, is that really the right message to send to the international community? What kind of foreign investor would see someone evading a financial obligation like that, and think: “that’s the right attitude, let me invest some money into this oh-so-reliable new republic”?
Reason to stay #1: economic isolation
The foremost argument in favour of unity is that an independent Catalonia would not only leave Spain, but would also immediately be left out of the European Union. From that, a myriad of negative developments are expected to follow. These include a loss of international trading partners, a sharp decrease – of 70% – in foreign investments and a skyrocketing unemployment rate due to the relocation of Spanish and international companies. It’s unclear how much time the new country would need to bounce back from these isolating developments. This may take several decades. But, as the optimists believe, Catalonia may also regain economic stability much sooner – by negotiating trade deals with other countries in advance, for example. The region already has a favourable geographical location and good infrastructure, both attractive traits for businesses. Moreover, the regional government is planning to add to those advantages by introducing tax incentives to attract firms, and thereby create jobs. It all remains to be seen, but, ultimately, in the long run, Catalonia might indeed be better off on its own by applying the right measures.
Reason to stay #2: extra expenses
How much does it cost to build a state for seven and a half million people, and run it appropriately? The region would have to bear several costs that are currently, partially or entirely, taken care of at the national level. These posts include health care, social security services and national security and defence, to name a few. Catalan authorities argue that they can fill the void. At the social securities front, for example, the Catalan government affirms that the working force is large enough, and earns enough, to eventually guarantee the payment of pensions and other allowances.
These are not all the potential consequences of a split, there are many more. Nor are they the only arguments for and against Catalan independence. But they will play a major role in the upcoming regional elections. Unfortunately, drawing up a conclusive balance from them results impossible. There are too many nuances, too many if-thens, to reach a definitive conclusion about whether or not Catalonia’s economy would improve or deteriorate after separation from Spain. That being said, the takeaway is: if Catalonia’s government must continue to chase independence after December 21, let the elected officials be careful, rational, let them plan ahead, negotiate with as many parties and countries as possible, and avoid rash decisions.