J. Ruiz-Huerta

Rey Juan Carlos University (Spain)

Edinburgh, 19-20 September 2013

Territorial problems and demands for independence: the present situation in Spain in

the context of the economic crisis (First draft)

General Index

1. Basic data for Spain and Catalonia.

2. Principal facts. Latest news concerning Catalonia.

3. Some explanations of the increasing demand for independence: 1. Differential characteristics of Catalonia. 2. Present economic situation in Spain and Catalonia. 3. The decentralization process in Spain. 4. Financing systems and principal asymmetries. 5. The problem of territorial fiscal balances. 6. Statute reform and the Constitutional Court ruling. Political problems and corruption. 4. Future perspectives and risks:

1. Spain and the Autonomous Communities

3

1. Some Basic Data (I)

1. Some basic data (II): GDP (2012) and GDP p.c. (Eurostat, 2013)

1. Some basic data (III): languages in Spain

2. Principal facts

• 1978: New constitution: the State of Autonomies (SA)

• 1979: Approval of Statutes of Catalonia and the Basque Country. Similar competences but different financial systems. Others followed.

• More that 30 years since de coming into force of the SA.

• 2005: The process of reform of the Catalonian Statute begins.

• 2008: Severe economic crisis in Spain.

• 2010: Ruling of the Constitutional Court (31/2010). Huge demonstration against it in Barcelona: “We are a nation, we decide”,

• 2010: New nationalist government in Catalonia. Proposal for a “fiscal pact”.

• 2012, 11 September: Approximately 1 million people in the streets, united behind the slogan, “Catalonia, a new state in Europe”. President Mas decides to call a general election, following attempts to discuss the fiscal pact with Mariano Rajoy, the Spanish President.

• 2012, 25 November: Regional elections (Nationalists win 74 out 135 seats)

• 2013, 23 January: Parliamentary Statement of Sovereignty for Catalonia. 2013, 11 September: 1.5 million people participate in the human chain in favour of independence.

3.1. Some explanations: Catalonia’s singular characteristics

• One of the richest territories in Spain.

• Particular history, marked by the defeat of 1714 (in the context of the War of Succession) and linguistic and cultural differentiation from the rest of Spain.

• Strong nationalist parties (CiU, ERC) and some social movements, who emphasise the identity (ethnicity, culture, language, etc.) of Catalonia and its differentiation from the rest of Spain.

• Serious economic crisis, which intensify the discontent linked to the Territorial Fiscal balance deficit and a comparative grievance when compared to “foral” regions (the Basque Country and Navarre).

• Frustration with the CC sentence about the new Statute of Autonomy.

3.2 The crisis: Gross Domestic Product at market prices in Spain (% change) (Eurostat, 2013)

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

European Union (27 countries) Euro area (17 countries) Spain

3.2 Real growth rate of regional Gross Value Added (GVA) at basic prices (Eurostat 2013)

3.2 Unemployment rate in Spain, annual average (%) (Eurostat 2013)

0

5

10

15

20

25

30

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

European Union (27 countries) Euro area (17 countries) Spain

3.2 Regional unemployment rates (Eurostat, 2013)

3.2 Government deficit/surplus 2003-2012 (% of GDP) on EA and some countries (Eurostat, 2013)

-14.0

-12.0

-10.0

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Euro area (17 countries) Germany Spain United Kingdom

3.2 Consolidated gross Government debt (% of GDP) (Eurostat, 2013)

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

100.0

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Euro area (17 countries) Germany Spain United Kingdom

3.2 Budget Balance and Public Debt (Source: MEC: Stability Program, 2013)

0

10

20

30

40

50

60

70

80

90

2007 2008 2009 2010 2011 2012

Public Debt/GDP

-14.0

-12.0

-10.0

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

2007 2008 2009 2010 2011* 2012*

Local Entities

AutonomousCommunities

Social Security

CentralAdministration

Budget Balance

3.2 Reasons for the previous boom and the fragility of the model

1. A growing part of the Spanish economy was dependent on the residential building sector. Rising house prices, the subsequent “wealth effect” and the fiscal incentives applied to buy houses generated a “housing bubble”, as in other countries.

1. Falling interest rates increased the overall debt of households (mortgages) and firms. Current account balances showed persistent deficits of about 10 percent of GDP, as opposed to those of other European countries, which were a clear sign of the country’s continuing loss of competitiveness. This involved a serious dependence on other countries through the financial system.

3. The general belief in the continuity of economic expansion made it difficult to introduce political changes. No anti-cyclical economic or structural policies were applied to cool down the overheating of the economy as a whole.

3.2 Some reasons for the differential crisis in Spain

•When the bubble burst, prices fell, assets depreciated and this led to the crisis in the financial system. The crisis in the real estate sector produced a slump in economic activity, •The Government had to bail out the financial sector, thereby increasing the deficit. But the availability of credit did not increase. •The austerity policy defended by European institutions has led to an intensification of the crisis in the southern European countries. There was a Widespread decline in economic activity in all ACs with little room to apply economic policies. •The transfer of monetary policy to the ECB meant a limited margin of action for the governments integrated in the EA to fight the crisis. EA governments must issue their debt in a currency they cannot control. And the Central European Bank could not play the role of a lender of last resort. •The “sovereignty crisis” was a consequence of public accounts disequilibria and of speculative financial movements against the Southern countries.

3.3. Decentralization: vertical distribution of expenditure

1985 2001 2006 2010

CENTRAL 38.2 24.1 22.2 20.4

SOCIAL SECURITY 38.7 29.3 28.5 31.6

REGIONAL 12.5 33.8 35.9 34.6

LOCAL 10.7 12.8 13.4 13.4

TOTAL 100 100 100 100

Source: IGAE (Several years)

3.3. Vertical distribution of revenue

1998 2006 2010

CENTRAL 48.3 38.1 36.6

SOCIAL SECURITY 31.7 29.4 33.4

REGIONAL 9.3 22.3 19.1

LOCAL 10.7 10.2 10.9

TOTAL 100 100 100

Source: IGAE (Several years)

3.4. General (Common) Financing System in Spain

EN

TAX REVENUES

TRANSFERS

AUTONOMOUS COMMUNITIES

GENERAL STATE ADMINISTRATION (CENTRAL

GOVERNMENT)

3.4. Foral Financing System

EN

TAX

REVENUES

QUOTA/CUPO

AUTONOMOUS COMMUNITIES GENERAL STATE ADMINISTRATION (CENTRAL

GOVERNMENT)

3.4 Pros and cons of the devolution process

• Successful devolution of powers and positive citizens’ perceptions.

• General System of Financing : Strong redistribution among Communities and re-ranking, slow process of tax decentralization, soft budget constraint, poor level of accountability and problems of coordination.

• Privilege (against Constitution) of the Special System and comparative grievance (demand for “Fiscal Pact” in Catalonia).

• Process of and demands for “recentralization” in other regions

as a consequence of the economic crisis, in parallel to the demands for independence in Catalonia.

3.5. Territorial fiscal deficit

• As it is well-known a fiscal balance tries to measure Differences between central government expenditure in each territory and the total revenue collected in it.

• Progressive taxes and public services cause the richer territories to have a deficit while the poorer have a surplus.

• The question raised in Catalonia is not the sign but the volume of the deficit (the criticism of “spoliation”). There have been much and rich literature on this topic.

• However:

- The exercise of reaching a fiscal balance is an academic or technical task. The results could change considerably, depending on the statistical information, the approach followed and other critical methodological decisions.

- The fiscal balance depends ultimately on the degree of redistribution of general taxes and expenditure, which are decided by Parliament.

- The political use of a particular number (%) in this field can be dangerous. That is the case of the identification of the fiscal balance with Spoliation (plunder), a word that implies robbery with violence.

3.6. Statute reform, the ruling of the Constitutional Court (CC) and other problems

• The ruling of the CC was understood and felt as an attack on Catalonia and democracy (after its approval both by the Catalan and the Spanish Parliaments and by referendum in Catalonia).

• The articles declared to be anti-constitutional were related above all to political elements (language, nation, historical foundations, etc.).

• The political response to the CC ruling and the territorial fiscal deficit have been the basic arguments used to encourage Catalonia’s separation from Spain.

• The poor results obtained by CiU in the elections has probably forced its agreement with ERC, reinforcing the strategy of sovereignty and the demand for a referendum.

• The Spanish political situation has recently been rocked by distinct cases of corruption, affecting individuals from almost all political parties and other state institutions.

1. Basic Opinion polls (CEO. Generalitat)

4. Future perspectives and risks

1. Referendum and constitutional reform: There is not an easy legal path and it is specially difficult without a framework of dialogue between Governments. An unilateral referendum can imply serious risks for everybody. Although the opinion polls seem to show an increasing vote pro independence, there is a certain degree of uncertainty related to these results. Other scenarios could be explored through democratic dialogue.

2. There are huge differences between studies, but economic viability of Catalonia as a state is out of doubt, at least in the medium term. If Catalonia ceased to be part of Spain and, as a possible consequence, was no longer part of the EU, the costs would rise substantially. In any case, is reasonable to expect relevant costs for both parts (and not only economic).

3. The economic recovering from the crisis does not seem possible in the short term in Spain, and this fact implies the strengthening of the independence demand.

4. Rupture and secession unilateral usually imply radicalism and a strong probability of serious clashes between Catalan and Spanish nationalists. This could be the current case in Spain.

5. Are there other possible alternatives? A new federal pact? This is probably impossible without the recognition of an asymmetric federalism and some corrections of the

present differences.