Arxiu de la categoria: A NEW STATE IN EUROPE

The Economic Consequences of Not Voting on 9N2014

 

Bon moment per recordar l’article publicat poc abans del 9N pel prestigiós bloc “Common Sense”

 

The Economic Consequences of Not Voting on 9N2014 by David Ros Serra

BY FDBETANCOR ⋅ SEPTEMBER 30, 2014 ⋅

9N2014CATALONIASPAINSPANISH ECONOMY

Common Sense welcomes guest writer David Ros Serra, who writes about the economic consequences of suspending the Catalan referendum on local and European markets.

Mr. Ros is the Coordinator for the Economics Group within the Catalan National Assembly. He has a degree in Economic Science from the University of Barcelona and works as the Financial Coordinator for the Municipal Government of Sant Cugat del Vallès.

The opinions of the author are his own and do not necessarily represent those of Common Sense, the Catalan National Assembly, the municipal government of Sant Cugat del Vallès or any other organization. This article is printed with the author’s permission.

Please scroll to bottom for original version in Catalan

The Economic Consequences of Not Voting on 9N2014

  1. Europe has a lot to lose with the economic instability of Spain

One of the key requirements of an economy is stability and the confidence in the normal functioning of the political, judicial and social sphere.

In the light of the fact that:

  • The Eurozone remains very fragile, with recessions again threatening key markets;
  • Growth and unemployment figures are very bad in Europe, but especially in Spain;
  • Spain public debt levels are already very high and will continue to grow;

If Spain were to become insolvent, few people doubt that it would cause a domino effect which would ripple across Europe and possibly the globe.

  • A default is always very damaging to the insolvent country, but it also hurts neighboring markets. Our (European) economies are so intertwined that a Spanish failure would certainly provoke a deep recession across the continent;
  • Without a doubt the European Union will do anything, pay any price, to avoid this eventuality.
  1. Spain wishes to continue oppressing the Catalan people

Catalonia is the motor of economic recovery in Spain. The region contributes 11 to 16 billion euros per year (USD$14 to $21 billion) more than it receives back in infrastructure investment and services.

  1. Catalonia and Spain can mutually destabilize each other

The Catalan people are mobilized in their demand for a new state. Their frustration with the irrational behavior of Mr. Rajoy can manifest itself in different ways, which could generate a lack of confidence in the situation among Catalan entrepreneurs and businessmen as well as with foreign investors. It should be obvious what this implies for Catalonia, Spain and Europe when this is the region that attracts the most investment in continental Europe.

Not only Spain would be destabilized. The economic uncertainty could affect all of the member states of the Eurozone due to the region’s interdependence. This could lead to serious questions about the sustainability of the Spanish debt as well as provoking insolvency fears in other Eurozone markets.

  1. The only way for Spain to avoid this uncertainty is to accept the referendum

Catalans have expressed their willingness to accept the results of the consultation, whatever those may be. In the event of a victory for “YES-YES” there would follow a period of transition and negotiation. Catalonia would require time to create and establish the state structures that it yet lacks, while Spain and the Spanish economy could also make use of the time to ensure a smooth transition.

  1. Time is against Spain. The reforms to the Spanish economy are also in need of a period of stability.

It is clear that Spain will require economic assistance from the European Union to overcome the deficiencies in its own reforms. The sooner Spain and Europe accept the separation of Catalonia, the sooner the negotiations on the terms of a bailout package can be negotiated with the EU (and other institutions like the IMF).

Spain must learn to stand on its own feet. One of the reasons an independent Catalonia would be a positive development is that the rest of the country would learn to succeed without parasitism. Once Spain really accepts that Catalonia is leaving, it will be able to start work on real economic reforms, not just spending cuts and/or tax increases).

Spain needs real political reforms, not just a repetition of past mistakes, in order to survive financially after the separation of Catalonia. It is that same separation which is needed to motivate them to finally undertake these critical reforms.

 

The feasibility of a new state in Europe

From the great popular demonstration of Catalan society in September 2012, but specially after the Catalan Way in September, when more than 1.6 million people joined hands to demand independence, there have been not a few Spanish politicians predicting all kinds of disasters in the event that Catalonia becomes an independent country.

Fortunately, there are many economists and academics who refute this point of view and, through studies and articles, have set out the economic and political reality of an independent Catalonia. There are articles that attempt to spread these positive arguments to as many people as possible, with the goal of removing unfounded fears. Fear should never be the guiding force of a nation.

 

Firstly, let us analyse the threat that Catalonia would be banned from Europe. The concept of being “banned from Europe” does not really make much sense because Europe is a continent and Catalonia, for obvious geographical reasons, cannot be banned from it. However, if we speak about the political Europe, it is made up of a multitude of treaties, conventions and institutions, each with its own individual rules.

In this sense, the most important thing in the case of Catalan independence is that companies established in Catalonia should continue to have access to the free movement of goods, services, capital and people between European countries. For this purpose it is not necessary to become a member of the European Union. This objective would be achieved just as much if Catalonia were to be a member of the European Economic Area (EEA). The EEA is a European common market formed by the UE member states plus Norway, Iceland and Liechtenstein. While a unanimous vote of all state members is required to become a full EU member, Catalonia only needs a majority vote to join the EEE (19 of the 28 member countries). Therefore, Spain could not unilaterally block the accession of Catalonia to the EEA.

However, why would European countries support Catalonia’s admission to the EEA? There are a lot of reasons. The most important one is that Catalonia is the main route connecting Spain with the rest of Europe. Furthermore, today there are more than 5,300 companies based in Catalonia. These multinationals are not here to supply the Catalan market, but to supply the EEA market (which includes Spain). The imposition of customs duties on Catalan exports would severely damage the interests of these multinationals. And these interests are enormous: Seat-Volkswagen (Germany), Renault-Nissan Alliance (France), BASF (Germany), Solvay (Belgium), Carrefour (France) and thousands of other foreign companies that have made strategic investments in Catalonia.

The second argument used by Spanish politicians against the independence of Catalonia is that a Catalan state could not have the Euro as its legal currency. This is both ridiculous and unrealistic because, as a country, you can use the Euro without having to belong to the Eurozone (such as Montenegro or Andorra). At the same time, the EU needs Catalonia into the Eurozone because its two main Catalan banks (CaixaBank and Banc Sabadell) are qualified as ‘systemic’ for the European financial market. In other words, if these two banks fail it could destabilise the whole Eurozone. Therefore, the European Central Bank will be the first one interested in having the Catalan banks under control.

In short, if Catalonia becomes a new state, Europe will not leave Catalonia to its fate. So, this is not the end of the world; it is only the birth of a new state in Europe.

 

DAVID ROS. Economist, coordinator of Economists for Independence, Economy Section of the Catalan National Assembly.