Unedited Event Transcript
Political Economy of Catalonian Independence
Roger Albinyana, Secretary of Foreign Affairs, Catalonia Angel Ubide, Peterson Institute for International Economics
Peterson Institute for International Economics, Washington, DC September 9, 2015
Adam Posen: Good morning ladies and gentlemen. It is my pleasure to welcome you back to the Peterson Institute for International Economics for the launch of our fall program. I’m Adam Posen, President of the Institute. And we’re actually, this morning, starting off with something that probably seems a little out of the ordinary for a Washington audience, but actually is in the core of our mission. Angel be quiet. You get to speak in a moment. It’s in the core of our mission.
This is the about the political economy of Europe, about the lines that are drawn between states and markets, about what is the right level of government to deal with today’s economic problems, and about the accountability of economic policy to local politics. All of that because some people in Catalonia have decided they’re going to have a referendum and an election. And we’re very delighted to have with us today, Secretary Roger Albinyana from the—who is Secretary of Foreign and European Union Affairs for the government of Catalonia and I’ll return to his bio in a moment.
But this is part of the Institute’s ongoing work on the political economy of Europe. Used to be, you would talk about the political economy of European integration. We don’t want to talk about the political economy of European disintegration, so let us leave it as the Political Economy of Europe. But it is a time of great political change and of economic pressures even as our colleague Jacob Kirkegaard, among others, have argued that the economic situation has stabilized and is improving. And those political changes must be taken seriously and the economic choices they represent must be politically debated.
And so I’m very grateful to the Secretary Abinyana and the Washington Office of the Catalonian Government for reaching out to us and suggesting this program. I also want to commend them that they are bringing this Washington, because even if Washington doesn’t always focus as closely on internal European affairs as some places do, this is going to be of critical importance. And I know Secretary Albinyana is going to be
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meeting with members of Congress and the Foreign Affairs Committees later today.
As usual we’re going to have an open, on-the-record discussion. This event is going to be streamed live on the web and then available for podcast. And we’re not going to do this as a formal debate, but we do like to have a challenging discussions and different points of view before opening it up to discussion from the audience here.
So first speaking will be Secretary Albinyana who served as Secretary for the European Union Affairs for the Government of Catalonia since 2013. Prior to that, he was the Director of the program to support the Union for the Mediterranean of the Government of Catalonia. And as we all know the politics and the people of the Mediterranean are something that was not to have been ignored. From 2008 to 2010, he was director of—forgive my pronunciation—Catalan Fundacio Cercle d'Estudis Sobiranistes. So he sort of has a think tank background. We like that. And he’s been a supporter and active with the Convergència Democràtica de Catalunya Party since 1997. He has a background in the party’s youth movement, speaks beautiful English and is here to engage with us.
Responding after his initial remarks will be my colleague, Dr. Angel Ubide. Dr. Ubide has been with us since a full time senior fellow since 2014 and has been affiliated with the Institute since 2010. Prior to joining us full time, he worked for a decade-and-a-half in the Hedge Fund Industry, a Tudor investment at D.E. Shaw.
He’s a very well regarded and incredibly well sourced macroeconomic advisor to investors and essential bankers. He and I run into each other quite a bit. He has been a steering member of the Steering Committee of the Euro50 Group, as a board member of the Reinventing Bretton Woods Committee and is a founding member of the European Central Bank Shadow Governing Council.
He started his career as an economist at the International Monetary Fund, an Associate at McKinsey & Company. He speaks, of course, just in his capacity as do all Institute fellows. But I should note that he does retain an advisor relationship with, I believe, the Socialist Party in Spain and therefore has a slightly different point of view. So let me turn it over now to Secretary Albinyana and welcome him to the Peterson Institute podium.
Roger Albinyana: Well good morning ladies and gentlemen. Thank you very much Dr. Posen for your kind words. Allow me to introduce you to my colleagues who were kind enough to accompany me this morning here in this session. Mr. Jordi Sole who is the Chairman of the Foreign Affairs Committee in
2 the Catalan parliament and Mr. Andrew Davis who is our delegate here in the United States, based in Washington D.C.
Ladies and gentlemen, first and foremost let me express my gratitude for this invitation to the Peterson Institute for International Economics; one of the most prestigious centers of thought here in Washington D.C. On behalf of the Catalan Government, it gives me great pleasure to be here today to navigate you through the current political process in Catalonia and some of the challenges that we will be facing in the very near future. As you may know, on September 27th, Catalonia will hold elections. While this may sound like business as usual, as you will probably be aware by now, this is far from the case.
Having had all legal options rejected or blocked by the Spanish Government, the Catalan Parliamentary Elections will be treated as a de facto plebiscite on independence, and the parameters of subsequent political negotiation with Madrid and Brussels will be conditioned by the result of these elections. The goal of plebiscitary elections is very clear. Let me very clear. It is to give the Catalan people the ability to vote and decide on their own political future. This is Catalonia’s goal but one which is based on the profoundly American ideal, promoted in President’s Wilson defense of self-determination and the right of a community to choose its own destiny.
For many people here in the United States, the Catalan self-determination process seems to have come out of the air. Of course, this is not the case at all. That’s why I would like to contextualize the situation.
First of all, there is a long-standing political and institutional tradition of self-government in Catalonia, which dates back to the 13th Century. This was when the Catalan Generalitat was first formed and our current president Artur Mas is the number 129th president to hold this office. In addition, our democratic tradition runs deep. The founding documents of Catalonia’s first medieval proto-democracy introduced the concept of checks and balances which predate even the Magna Carta, different from the United Kingdom subsequent political trajectory.
However our institutions of self-government were abolished by Spain and remained this way during most of the 18th, 19th and 20th centuries. But the suppression of Catalan institutions did not kill the spirit of the Catalans or their determination to recuperate their self-government language, culture and customs. Catalan determination paid off during the transition to democracy when the Catalan President in exile returned to Catalonia and Catalonia self-government was once again reconstituted.
3 During the following decades Catalan politicians and civil society were a strong protagonist in Spain’s developing democracy, working to assure Spain’s accession to the European Union and to NATO and to other treaty organizations, which the dictatorship had been left out.
Many parties in Catalonia even supported both Socialist and Conservative minority governments at different times during the transition in the late ‘70s and especially during the ‘90s, thereby assuring political stability during difficult times. But I must say that there was always a quid pro quo amongst Catalan for this support, which was that the newly democratic Spain that they were supporting would behave itself in a manner consistent with a Spain that Catalan served and wished for. One, which was considered itself as a multinational, multilingual and multicultural, with a strong dose of decentralization and respect for a minority nation such as Catalonia.
Needless to say, as long as that dream was alive, the concept of a strong Catalonia within Spain was something that many Catalans shared. That dream was lost to many. However, as from 2000, more or less, when the people’s party obtained its first absolute majority, beginning with the first wave of recentralization, and especially in 2010 when the Constitutional Court not only shattered that dream but humiliated Catalans too. But before I bring you from 2010 to the current political situation and the nature of the plebiscitary elections to be held on September 27th, let me bring you up to speed on the Catalan economic situation.
Catalonia is the economic powerhouse in the Iberian Peninsula. Our population is 7.5 million people, which places between Denmark and Austria in terms of population at the EU level. We account for 16% of Spain’s population but nearly 27% of Spanish exports. Catalonia’s GDP stopped at €209 billion in 2013, which is nearly 20% of Spain’s GDP and places between Finland and Denmark. Catalonia is the most popular destination in Spain for foreign direct investment with nearly six thousand multinational companies having located there; 38% percent of Spain’s total.
We are also a major research hub and we devote 1.7% of our GDP to research and development. In addition, we have a major tourism industry with Barcelona amongst the most visited cities in the world. There were more than 17 million foreign visitors in Catalonia last year. Catalonia’s relative success has been accomplished despite a large fiscal deficit with the rest of the Spanish regions. The consequences of the deficit are real, implying a lack of the investment of infrastructures necessary to remain competitive, severe difficulties in funding, essential public services such as education and healthcare, an overly high tax burden that we have to go through.
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And the root of the problem is most certainly not Catalan profligacy. Catalonia has the lowest proportion of public employees in Spain—just 4% of the overall population—and the Catalan government has made deep cuts in public spending over the last five years, around 20% of our real budget I would say.
I would venture to say on the economic fronts, I have said little that is controversial, but what I imagine where Dr. Ubide—I have problems to pronounce—Ubide, excuse me—what I imagine what Dr. Ubide and I may disagree on are the assumptions made in order to predict future scenarios for an independent Catalonia. These assumptions as I’m sure you will all agree are critical to understanding future scenarios.
In order to get to the question of assumptions, however, we need to turn back to 2010 and the betrayal that many Catalans felt when the Spanish Constitutional court blocked Catalonia’s Statute of Autonomy. They felt betrayed because they had spent years negotiating the text of the new Catalan Constitution, which had gone through ultimate democracy litmus tests. The text was approved by a majority of the Catalan parliament, approved by the majority of the Spanish Congress, approved by a majority referendum in Catalonia.
The messaged they received from the constitutional court was very clear. It went something like “That’s it. You’re done. You will have no further decentralization or self-government.” Combined with the Spanish government’s move embracing a strong recentralization push, you can begin to see the contours of two political systems at complete loggerheads with one another.
As a rejection to this centralization push, Catalan civil Society has organized marches form human chains, hundreds of miles long and organized a non-binding referendum at which more than 2 million people participated. From Catalonia, the message since 2010 has been clear and consistent. There is a large majority that believes that Catalans have the right to determine their own future, and they will do so accordingly. In fact two-thirds of the Catalan parliament, 95% of the municipalities in Catalonia have endorsed that idea.
Following this mandate, the Catalan government has made several attempts to work through this issue with the Spanish Government, including several proposals, requests and even Catalan laws passed in order to create a legal structure by which a self-determination referendum similar to what the Scottish Government negotiated with the UK government could be held.
5 Of course, all approaches have been rejected out of hand without a whisper of formal or informal talks on any of the proposals. All that said, we are aware that there is a strong debate on Catalan self-determination, as of course there should be over an issue as important as this one. We welcome that debate. We encourage that debate. And this is precisely why we are holding plebiscite elections.
At times however, Catalans desire to determine their own political future comes up against criticism, which we consider both to be, at minimum, out of place and out of touch. The first is what I call the “Lambs to Slaughter” argument. In this argument, which explains the millions of people who are peacefully and openly organizing and advocating for self- determination is that Catalans are being tricked by their government, by the Catalan Government and by undefined forces.
According to this argument, the millions of people who have organized and peacefully protested, who come from all walks of life, economic background and ages have little to no self-awareness or ability for critical thinking. They have no concerns for their future well-being, nor their parents, nor their children, nor their neighbors or, indeed, their country. In short they need to be woken up from their zombie-like state before it’s too late.
The second argument goes as follows: As zombies Catalans do not realize that they are living and what seems to be quickly heading towards to a totalitarian regime. Yes, you heard right. Catalans have been accused of creating a climate similar to that of the Europe of the ‘30s. You may think that I may be exaggerating, but I’m not. One need to look at an op ed published in El Pais—El Pais is the most important and largest newspaper in Spain—just 10 days ago, by foremost Spanish Socialist President, Felipe Gonzalez, who wrote, that “Self-determination process in Catalonia and the atmosphere created in it is the closest thing to the German or Italian adventures of the 1930s.”
From a strategic perspective however, the totalitarian argument against Catalan self-determination makes perfect sense if you can make that argument stick. Of course, then the argument that Catalonia would be an economic disaster post-independence exile from institutions such as the European Union and NATO, floating around the universe as the current Spanish Foreign Affair Minister has put it, is indeed very logical. From this perspective Catalans must be punished for their acts regardless of the fact that it is not in the medium or long-term interest of anyone in Europe including Spain.
Of course these arguments get no traction past the French border, but it creates a lot of psychological pressure into the Catalan mindset and public.
6 And beyond the rhetoric and the name-calling of course that is a real world. In that world which I think Washington understand quite well is where real politics rules. Real politics recognizes first and foremost that if the majority of the 7.5 million Catalans are determined to decide their own future democratically, transparently and peacefully, then there is not much that could or in reality should be done.
The Catalan government, assigned to a board of independent and prestigious academics, the preparation of 20 reports, which range from energy policy to security to defense on how an independent Catalonia can look like and should be organized. I’ll be happy to share with you some of the findings or the data released on issues such as the fiscal or financial viability or the economic impact of an independent Catalonia. Unfortunately I don’t have the time now to go through these reports, but I’m sure that if during the debate we have a chance, we will be able to discuss that more in detail.
We can agree that the Catalan economy is similar in size and scope to that of several viable EU states. In the end what we are left with regarding Catalonia economic future depends largely on the assumptions, as I said before, affecting political reactions to a transition to independence. From this perspective, those that doubt the viability of the newly created Catalan State do so by assuming that Spanish and European policy makers will form the equivalent of a massive circular firing squad around Catalonia, whereby Spain would act not only against Catalonia’s interests but indeed against its own interests.
Ladies and gentlemen, I don’t want to leave you on a negative note. Facing all these issues we come to you with a message of hope, of hard work and of solidarity. Those are values that we want to share with our neighbors and with the world as the economic powerhouse that Catalonia is in Southern Europe could be stronger still as an independent state. In the end, democracy will prevail on the 27th of September, much to the anger of those who are looking to silence our voices.
If you do not wish to take my words, I would encourage you to check the International Section of any newspaper next Saturday morning, and there you will see what I’m talking about. Without a doubt you’ll find pictures of peaceful protestors once again numbering more than a million, making their preference known and demanding to have their voices heard.
Finally, we believe that the mandate, which comes out of those elections, will be clear and will be legitimate. And whatever the outcome we are confident that cooler heads will prevail and solutions would be found to whatever Catalan chooses. Thank you.
7 Dr. Angel Ubide: Thank you, good morning. Thank you Secretary Albinyana for this very eloquent speech. Thank you Allen for the invitation to discuss it. Let me start by saying that I am a citizen of Spain. I’m a citizen of Zaragoza, which it’s in the kingdom of Aragon in case you didn’t know. That also has a lot of historical tradition. And I also have family in Catalonia. So don’t take my words as somebody from the rest of Spain who is upset. Take my words as somebody who is here to try to give you facts and context in the most unbiased way. My mandate here is to tell you the facts and I’m going to tell you the facts. So let me start with two things and then I will elaborate. If you look at the statistics and the data on Fiscal Federalism in OECD countries, Spain is one of the countries with the biggest amount of devolution or fiscal federalism. It’s bigger than in Germany if you calculate the share of Spain that is managed at this national level, and it is at a similar level to the US. Now, I was not planning to read this but given some of the things that were said, let me do it. Let me read this from Wikipedia: Catalan was the only language of instruction between 1979 and 2012 in Catalonia. Students were immersed in Catalan except for three hours per week of Spanish medium instruction. So I just want to leave you with those two data points and then I’m going to give you a little bit of the context of what’s going on.
So I think the summary is the following. A unilateral decision to declare independence is going to increase uncertainty to a major extent. We have seen it with the debate in Greece about exit and we know that uncertainty can be very damaging for economies and societies. Let me give you some of the context of what the current situation is.
The Spanish constitution in 1978 set in motion a process of Fiscal Federalism. This created a dynamic whereby regional governments in Spain have an objective of maximizing the amount of competences that were going to be exhibited to the region. This process basically was completed around the year 2000, a little bit after that. And as a result, as I said, Spain is one of the countries with the biggest amount of devolution. It’s way bigger. So you understand that what David Cameron was suffering with Scotland under the [inaudible 00:25:46] proposals after the Scottish referendum. So Scotland would not get to the level of devolution that the Spanish regions already have today.
Now the dynamics of regional politics in Spain are such that if you end up with—if you reach the end of the road of devolution, then you have nothing else to over to your regional voters. So what happened when the crisis arrived in 2010, all the regions in Spain in addition to the Central Government, had to implement very sharp budgetary cuts.
8 Now you are in Washington and you know that one of the rules of politics is that when you have to do something that is politically costly, you invent and enemy to deviate attention from that action that is going to be politically costly. So it became an instrument of the politics of the Catalan government to basically say, “We have to do this budget cut because Spain is robbing us, because the fiscal situation is such that were it not be for the structure of fiscal of fiscal failings in Spain, today we would be richer and therefore we wouldn’t have to be doing these budget cuts.”
Now you know that this is something that works in politics around the world. It’s something that has worked very well in Catalonia. Now let me give you one data point. You go to Google Trends, there isn’t a single mention of Catalan independence before 2010.
Now, this is not scientific but it is another argument to say that there was no discussion in the mainstream political debate in Spain or in Catalonia about Catalan independence before the financial crisis. Yes there were some minority parties that were talking about it, but it wasn’t part of the mainstream debate. And I think this is something that is important to understand for context.
Now let me get in some of the facts that are being used to support the independence claim and try to give you a more balanced view. The first one is that Spain steals from Catalonia. This has become the rallying cry of the pro-independence movement and this all circles around one number. Catalonia will have €16 billion Euros to spend. That is around 7% of Catalan GDP if they were independent. Now the number is incorrect by at least an order of magnitude. We can argue about the calculations, we can argue about how to correct it properly, but at least there are two facts that need to be considered.
One is that if a region becomes independent, it’s going to have to carry a lot of expenditures that right now are being carried by the State, by the Central Government such as defense and others. The second one is that Catalonia pays more than it receives basically because its income per capital is higher.
I was looking at economies the other day. They have calculated how much US states have been paying in addition to what they receive in terms of transfers. When you look at Connecticut for example, it has been contributing a 100% of GDP cumulative over the last 20 years. Makes sense. Connecticut is a [inaudible 00:29:04] with a high income per capita. This is what progressive taxation is. And I don’t think anybody in Catalonia would be against progressive taxation on the individual level.
9 So if you recalculate these numbers, based on the principles of horizontal equity, essentially you pay and receive more or less the same regardless of the region you are in, and the principle of proportional redistribution of spending, the excessive contribution of Catalonia has been around €3 billion Euro, around 1.5% of GDP. That’s a number that needs to be revised. But it is a number that is an order of magnitude smaller and it’s not going to make that big of a difference in the future of anybody.
The second point is that it is argued that growth would have been stronger had Catalonia been independent and therefore it would be better once Catalonia is independent. So let me give you at least three arguments just to balance this argument. The first one, if you read Nate Silver’s book on forecasting, the first thing you need to do when you forecast is to look at historical evidence. Now there is no historical evidence of any independent process that has resulted in the independent region achieving higher growth back. If you look at the work done by—who also happens to be my friend—Andreas Rodriguez Pose at the London School of Economics, he has looked at all the independence processes mostly in Eastern Europe [inaudible 00:30:33] as Yugoslavia, but also some other countries had most returned to the previous growth path. Keep this data point into account because this would have to be balanced versus the cost of unilateral independence.
Second, there is no evidence that the qualities of institutions in Catalonia are better than the average quality of institutions that there are in Spain. You can argue that growth has been dragged down because the quality of governance in Spain was weaker than what Catalonia would achieve. If you look at the European Commission’s Report of 2012 about the quality of government in European Countries, what you find is that Spain ranks about average, Catalonia ranks in the bottom third, and surprisingly to me, it ranks towards the bottom of the Spanish region. So we can argue over the methodology of calculating this number, but that’s the number.
Third, it is true that Catalonia’s growth has been very strong. But let me remind all of you that Catalonia’s potential growth benefited more enormously from the 1992 Olympic Games. The 1992 Olympic Games changed, to a very large extent, the infrastructure of Barcelona and of Catalonia. Now those games were financed by the Spanish state and the city of Barcelona. Interestingly, I learned when I was preparing for this that the Catalan government didn’t want to contribute much to the financing of these games.
There is a paper written jointly by the University of Barcelona and the city of Barcelona that shows that not only this provided a very large cyclical boost to growth in the region during that period, but this benefit continued for many years. For example, Barcelona moved up several steps higher in
10 the ranking of the best city to conduct business. This something that has happened. It has been a positive spillover that Catalonia has benefitted from and has it been because it was part of Spain.
Let me go to the cost of benefit of some people call it “Catalexit” or the unilateral exit of Catalonia from Spain. Now the narrative that the pro- independent camp uses is quite simple: Catalonia will be a viable country. Yes, in a steady state if we ignore everything else that would happen around that and probably in a distant future, but we need to think about the destruction that would be associated with all this and whether this would change the viability of the state. So let me start with a few of these assumptions that are being mad.
The first one is, as it has been often discussed, belonging to the European Union. That is both a legal opinion from the commission and a political statement that Catalonia would have to go back to square one. Some people argue that Catalonia might be of systemic importance and therefore this would require an exception from the political, legal establishment and political statements of today and would change the process. Now I have no idea, but let me give you another data point. Catalonia GDP is similar to that of Greece, its population is smaller and I don’t think it has the same geopolitical value as Greece. And what we have seen recently is that the European Union is very firm against political [inaudible 00:33:52].
So I don’t know what would happen as far as considering Catalonia to be a systemic region. Catalonia would obviously have to build institutions. It would generate a multi [inaudible 00:34:04] transition. We’re going back to uncertainty.
I was discussing with somebody this the other day in probably the [inaudible 00:34:10] terms, there are more scenarios that are negative during the transition period than are positives. So you can think of it as a self-inflicted financial crisis where your level of output dramatically drops. You have seen those charts. You’re going like this, you go like this and then you go back to the previous growth path. It can take a decade to recover the previous growth level.
Let me clarify a couple of factors about the economy of Catalonia. The first one, Catalonia runs a very large trade surplus. That’s absolutely true and that is one of the instruments that—one of the elements that are used to definite it as an economic powerhouse. But what I didn’t know is that that surplus is basically a very large trade surplus with Spain and a trade deficit with the rest of the world.
Now, there is something economists called a Frontier Effect. The Frontier Effect is an effect that implies that regions trade more with adjacent
11 regions in the same country than with adjacent regions in a different country. We’ve seen that in Canada. You can see that for example comparing trading with Portugal versus regions inside of Spain. You’ve seen it other places. What the impact of the Frontier Effect would be? Nobody knows. But I’ve seen two studies that argue that the drop in trading in Catalonia could be large, basically of the order of 50% decline that would erase the trade surplus.
Now you may say that impact looks very large. Maybe. But that would leave Catalonia still exporting to Spain three times more than they would export to France or to Germany in that regard. So it is not as big as it sounds and it looks realistic. Now, I’m going to skip over some of the transition issues because I think there are more interesting things to debate. The market assessment as of today is negative, the spread of Catalan bonds has increased as you know under Spain bonds have increased versus Italy. This is just the beginning. This is bound to accelerate as we get closer into the election, the campaign as the Secretary said starts on Saturday and I am reasonably certain that the spreads will increase in the next couple of weeks.
So what is the conclusion? The conclusion is twofold. First, none of what I said are extreme or unrealistic scenarios. These are scenarios that must be considered when you are thinking about a unilateral process. And therefore it needs to be explained that again, probably weighted, a unilateral move is bound to be quite negative for the citizens of Catalonia.
How do you solve it? You solve it with a negotiation. There is nothing that cannot be negotiated. You change the Constitution and you make the road longer to have more political rooms to discuss and to be able to continue together. Both Catalonia and Spain would be better together and I hope that they stay together. Thank you.
Adam Posen: If I could invite the Secretary to join us on stage; I’m on this end, the Secretary in the middle, Angel at the end. Thank you very much for both of your remarks. I am going to give the Secretary a chance, very briefly, to respond too Angel, but I encourage him to keep it short. No the next seat please. Keep it short so that we have time for questions from the audience.
Roger Albinyana: Sorry.
Adam Posen: No problem Mr. Secretary.
Roger Albinyana: Okay, well, first of all, thank you Dr. Posen for giving me this opportunity and I’ll try to keep it very short because I think what matters now is the possibility to have an exchange of views. I would also like to thank the intervention of Dr. Ubide—did I say it correctly now?—Dr. Ubide, for
12 expressing his point of view on what’s going on in Catalonia. Of course as you can imagine, we profoundly disagree. And I can go through all the things he said trying to find an alternative argument to counteract many of the things he just said, but that would actually keep my intervention rather long and I think it’s important that we have as I said this exchange of view.
However, I would like perhaps point out to two or three remarks. He said, and I profoundly disagree with, that the cause of the emergence of this independence is self-determinist movement in Catalonia has to do with the economic crisis, and I think that this is completely wrong. I mean not only—and I showed it during my presentation because the relationship between Catalonia and Spain—when I mean Spain, I don’t mean Spain as a country, I mean the Spanish institutions—has been bad throughout the last centuries and has been deteriorating since the year 2000.
But I believe that the turning point was the sentence released by the Spanish Constitutional Court—which is like the Supreme Court here but not as independent as the Supreme Court here in the United States—in 2010. That is the catalysis. That is the element that transforms many of the Catalan people and provokes a shift in their mindset when comes to the relationship with Spain. Because it is true that independent dispositions in Catalonia throughout many decades in the past—the figures were around 20%, 15% and most of the people actually were part of the so-called fair way, meaning that they believed in Spain but they believed in a different Spain.
It was the decision of the constitutional court, which was prompted by the then opposition party, the people’s party, that was in the opposition but also by the socialist party because the socialist party, also some of the regional leaders of the socialist party were applying against the Catalonia Statute of Autonomy that caused that important shift in the mentality of people. And that’s why many of those who believe in a different Spain, moved and advocated for independence from Spain.
Secondly, or second remark; I disagree with his data on the fiscal and financial viability of a hypothetical independent Catalonia. Basically because we have conducted of course as a government and as I said before, we tasked a committee formed by independent academics exactly the same way as the Scottish and the British government did during their campaign to work on different reports and make different prospective scenarios.
And what we have come out is that there would be a net fiscal gain of around 6% of the GDP, taking into account, indeed, that of course the government would have to carry out new spending because nowadays
13 there are a lot of powers and a lot of competences, which are still in the hands of the Central Government. And this would have to be assumed by the Catalan government of a hypothetical independent Catalonia. But the Catalan Government also would be able to raise enormously the amount of revenues.
At the moment, Catalonia is under financed; the financing system has really deteriorated and has impacted in a negative way in our economy, not only of Catalonia but also of other deficit regions such as the Balearic Islands, Madrid or Valencia. But I want to focus on the case of Catalonia. And therefore, taking into account this new balance, there would be a fiscal gain of around 6% of the GDP.
I would say even more. I would say the Centre for European Policy Studies, which is a performing and important and prestigious think tank based in Brussels, which has be conducting similar studies for exiting countries from Central and Eastern Europe, has concluded that the major threat that Catalonia’s economy has in the future is the status quo, basically. The cost of the status quo of keeping the situation as it is. And they concluded in a report that you can find on the website of [inaudible 00:44:32] which is that think tank in [inaudible 00:44:33], that both negotiated independence, or even unilateral independence, which is not the objective of the Catalan government and the Catalan political forces because we want this process to be conducted in agreement with Spain would be more beneficiary for Catalans economy than keeping the status quo. And they have made some prospects in terms of employment growth, in terms of economic growth.
So the viability of the Catalan economy and the Catalan public finances and the Catalan public policies is there, it’s obvious. Thank you.
Adam Posen: No, thank you for your concise remarks. Can you just hold on one second? I don’t want to cut us off because this is a critical part of the debate; the assumptions and the scenarios you make for the costs to Catalonia going forward. And of course it’s very much in the Institute’s interest and all our interests to get the facts out on that. The problem is I don’t want sort of just citing opposite authorities. So we will make available all the references to both their speeches on the website. The links would be there.
What I’d like to do is just pose two questions quickly to these speakers and then open it up to the audience. Just to put my cards on the table, I got involved in the Scotland Succession Debate and I’m a staunch unionist, at least as far as the UK’s cause, but part of the issue for Scotland—which I think is relevant to raise for Catalonia and I’d like to get both our speakers to comment—is not so much the issue of the level of growth going forward, it’s the issue of risk sharing and volatility. So if we think about
14 Scotland, part of the issue for Scotland was they happened to be very dependent on oil and financial services. And over a long period business cycle, there are transfers from the rest of the UK to Scotland and vice versa.
We mentioned, Angel mentioned, that in the US we have a similar degree of fiscal devolution to that in Spain. But of course a key difference between the US and within the EU is the amount of risk sharing, of fiscal transfers within the Union. So I guess what I’d like both of you to address is how does this work going forward? Does Catalonia just sort of self- insure? Does it then as things go up and down, not expect transfers and the rest of Spain, not give transfer to the rest of Spain? Is there some negotiated settlement to maintain some partial transfers?
And let me just stipulate at the start: I fully recognize the Catalonia has a more diverse economy that Scotland. So there is some inherent stabilization there. But just since this has been this kind of risk sharing is obviously the heart of so much of the economic troubles in Europe, how do you think about the risk sharing and fiscal transfers issue were Catalonia to go this route? Mr. Secretary.
Roger Albinyana: Thank you Dr., so as I said before, the Catalan Government and this is also stipulated in the road map that the main coalition this is running in this election has put forward to the citizenship on the upcoming elections by the end of the month, is that we want this process to be as much as in agreement as possible with Spanish central government institutions. This is not only beneficial for the Catalan people and the Catalan Institutions, but it is also beneficial for the Spanish institutions.
That means that, of course, in this road map, if and only if there is a clear mandate by the people of Catalonia on the elections at the end of September, of course an appeal from the Catalan institutions to the Spanish institutions to start a negotiation on how to implement that mandate would be done effectively once the parliament is reconstituted after the elections and the new government is elected. And that includes of course, this negotiation, all sorts of aspects. And one of the aspects— and I think this is a crucial—it is the nuclear aspect, is the negotiation on the sharing of assets and liabilities.
And of course in the part of liabilities, one has to take into account the debt, the part of the debt. Spain is reaching now a debt, which is close to 100% of the GDP due to the financial crisis mainly. Catalonia, if you take into account only the debt of the Catalan government and the Catalan municipalities, is more or less around 34% of the GDP. So of course, if we reach a point of negotiation with Spain in which we assume the part of the
15 Spanish debt that we decide, our public debt after the declaration of independence, would reach around 90% to 100%.
Now, on your questions as well—because this is not my topic or the topic that I am normally talking about—as you probably know, the credit rating of Catalonia at the moment is bad, so is the credit rating of Spain; still improving, I would say, but it’s still bad. This is basically because the rating agencies do not see that Catalonia has the potential of the possibility to raise its revenues because we are under financed.
So of course we don’t have credibility. We have to go to a fund that has been created by the central government institutions to borrow money from there in order to finance our public policies. But of course that would change with independence because as you rightly said, Catalonia is a fully diversified—has a fully diversified economy, has a dynamic, a vibrant economy with Barcelona at its core. And nobody in Europe, nobody in Europe or at least past the French border, believes that Catalonia would not be a viable economy able to raise and borrow money and funds in the private markets after independence. It’s absurd.
We have even calculated the amount of money we need in order to survive the first month and we need € 5 billion monthly in order to face, not only the current Catalan policies but also the public policies that well would have to inherit that are currently carried out by the Spain administration, such as social security, pension funds, unemployment funds and so on and so forth.
Adam Posen: Thank you. Dr. Ubide
Dr. Angel Ubide: Just two quick points or three. I think the first one is that Catalonia has no market access, hasn’t had any market access for the last several years and it relates a little bit to what the Secretary was now talking about. Now the reason why Catalonia can’t continue to fund its budget is the transfers that are coming from the Spanish budget that has market access. Now one important thing when you become an independent country is your track record in terms of fiscal discipline and in terms of credibility of institutions. And some colleagues from the IMF have pointed out many times, and if you remember a few years ago markets were very worried about the solvency of the Spanish economy because a lot of the spending was in the regions and a lot of the deficit was in the regions. So there is a little bit of a credibility deficit there that may need to be restored.
Now let me make an important point that I didn’t say in my presentation. Something that happened in the days of Scotland, something that has happened in the case of Quebec is that big multinationals don’t like
16 uncertainty and when they are faced with the prospect of independence they leave.
Now in the case of Catalonia, a big share of this multinational, foreign multinational I would I assume are there because it’s an entry point to the European Union. If there is uncertainty about the probability of sustaining the European Union in the foreseeable future, what the multinationals are saying—and there is an increase in noise coming out of this—is that they would leave and transfer their headquarters somewhere else. It will have a very important impact, not just on GDP, but on the fiscal base because a multinational that has its headquarters now for the European operations in Catalonia, pay taxes in Catalonia based on the world alliteration. If they leave and they only leave a branch or two, they will only pay taxes on the operations of that branch.
So it shrinks the fiscal base and I think that this is something that needs to be considered in terms of the fiscal viability. The third point is the currency. There has been no mention here of what kind of currency an independent Catalonia would be able to operate. They could use the Euro as a Euroized entity, because if they are outside the European Union they would not be able to use the liquidity of the European Central bank, and again, from the point of view of the operation of businesses that would create tremendous uncertainty and probably have a negative impact on growth.
Adam Posen: Okay, let me—I’m not sure I elicited an answer on risk sharing, but we got a lot of interesting stuff out of that. Let me pose a more political economy question going back to a point of disagreement between our two speakers, whether, in a sense, the turning point was the Constitutional Court decision or the economic crisis in 2010 in terms of building support for Catalan independence. But I want to make it a more general question about Europe.
Are we in a world where, for Europe—let’s say Catalonia does succeed in this effort, and even if it, let’s say, goes reasonably well, are we moving to a world where we foresee Europe becoming a Europe of the regions, not just in rhetoric but truly [inaudible 00:55:30]? When I lived in the—the first time in the EU in 1992, there was a lot of talk about subsidiary. That term has been away for a while, but I mean, are we moving towards a world in which it’s because everybody wants to keep their money at home or is it because everybody is getting much more identified with their local politics, let us say, rather than with European politics and what does this mean for Europe? Mr. Secretary
Roger Albinyana: Well I don’t think we’re moving into Europe of the regions, and in fact, part of the situation we are seeing and nowadays in Catalonia is also a
17 response towards that because Catalonia has always been, not only been strongly committed to European integration and to more European integration and to European federalism, but also to the possibility of having a fair representation in the EU decision making bodies. And this has not happened.
In fact, the European Union has moved into a more intergovernmental institution in which the weight and the strength of the member state and the national governments of the member states is increasingly more and more important we are seeing it now with tragic happenings of the refugees in Europe. We’ve seen a courageous and important decision by the German Chancellor, by the German Government, to welcome new migrants and new refugees, but at the same time to demand a policy at EU level that is able to share, among all member states, the burden of this wave of refugees. And we are seeing no response from many of the member states including Spain by the way.
So Europe is not moving into that. Europe is moving in a direction that we don’t like as Catalans, and basically, when we see the powers and we see the possibilities that countries of similar size to Catalonia—like Denmark, Austria, the Netherlands, well the Netherlands is a bit larger—Catalan people of course demand a similar treatment and a similar opportunity. And that’s why this movement is there. So basically that would be my -
Adam Posen: Thank you.
Dr. Angel Ubide: Okay let me quickly address the volatility issue and I have forgotten with one sentence. So in my view the income per capita will be more volatile in a Catalan—in an independent Catalonia than is remaining inside Spain, which I think is what you were trying to address there.
Now, I think the move is the opposite. The move is towards building more Europe and transferring more sovereignty towards the European Union. So the move that we are seeing in the big political picture is we live in a globalized world. Bigger is better. Bigger gives you less volatility and more re-sharing. You are more able to cushion asymmetric shock. You’re going to have a more stable business cycle and that’s why the debate in Europe is moving towards talking about a European treasury, talking about perhaps a fiscal capacity and completing the banking union. And that’s the direction in which politics are going and should be going in my view.
Adam Posen: Thank you very much. So we’ve heard to very clear sets of statements. I’m grateful to both our speakers for being so engaged and concise. Let me open it up to the floor. There’s a standing mic at back and there’s a
18 moving mic with Jessica at front. Please raise your hand, I’ll recognize you. Please identify yourself when you speak and please make a short question or comment, not a speech. First the gentleman at the back mic and then Jacob over there. Please.
Adam Posen: Is the mic on please? Okay Jessica could you hand him the mic please? We want the mic so that we that we have it on the recording. Thank you
Speaker: I’m going to [inaudible 00:59:56] of Spain. I’m going to make three questions but very short. The first is why haven’t your government tried to change the constitution? You said you tried everything. That’s one of the things and bear in mind that the constitution in this country is something that everyone respects sacredly.
Second thing, you talked about, and also Angel, about the potential cost and benefits of independence. What about the real costs of focusing the whole public debate on independence and not talking about unemployment, inequality, child poverty which are problems that Catalonia shares with Spain and also with other countries?
And finally, you made some historical reference to Catalonia, Mr. Albinyana, when has Catalonia has it so good? When has Catalonia had it better than in modern constitutional Spain? Can you tell us when have you been in a better situation? Thank you very much.
Roger Albinyana: All right, I will start with the last question because it is the easiest. That question is tricky. That question is tricky because in Western Europe in general all countries have never been better off than nowadays, despite the financial crisis, but of course it is obvious. If one looks at the history of Spain during the last 300 hundred years, well there’s not much room to basically feel better than nowadays because the history has been a catastrophe, total catastrophe especially in the 20th century with the bloody Spanish Civil war in the ‘30s, a bloody dictatorship for 40 years plus the 10 years prior to the Second Republic. So it’s a tricky question.
Of course that we have never been better off—we have never been better off nowadays. But I believe that if you go to, I don’t know, you go to Germany or you go to Austria, they will answer in the same way. And it doesn’t mean, this doesn’t mean that we could not be better if we have the instruments and we have the capacities that an independent state would give us. But in any case this is not up to me to decide it. It’s up to the Catalan people to decide it.
Why have we not proposed a direct constitutional change? Well we have proposed it. The reform and the adoption of a new Catalan Statute of Autonomy was an indirect constitutional change. It was an indirect
19 constitutional change, because the Spanish constitution from 1978 is flexible in many ways and interpretations of the constitutional court, especially during the first, let’s say the first 10 to 15 years were rather, I would say neutral and objective.
But then things change and especially the sentence of the Constitutional courts from 2010 creates a [inaudible 01:03:19] of interpretation of the constitution in the Spanish Constitution. So there is always a saying among Catalan politicians, they always say that whenever the Spanish constitution will be formally changed—because if you go to Belgium you will see that the constitution is changed every two three years. In Spain they only changed it I think once or two for very small, minor things.
They always say that whenever a new formal change in the Spanish Constitution comes the situation and level of government and self- governance of Catalonia will be damaged, so it’s better not to touch it formally and that is why we use this informal way, which was the reform of the Catalan Statute of Autonomy, which in the end, it didn’t work or it worked in the opposite direction.
And finally, I fully agree with you the cost of focusing only on independence, but of course, as you will imagine first, the Catalan Government is still ruling the country in the sense that in the past five years during the financial crisis many new programs have been put in place especially targeting child poverty, targeting youth unemployment, targeting all the social problems derived from the economic crisis.
But I agree with you. It’s an exceptional moment for Catalonia, it’s a historical moment for Catalonia because during the last 300 years Catalan people did not have a change to decide its destiny as a people and this is very important for any people in the world. And that’s why now the debate is that one. But we would be first interested ones to have the debate pass as quick as possible.
Adam Posen: Great thank you. Thanks for the concise questions and the very clear answers. Please.
Jacob Kirkegaard: Jacob Kirkegaard from the Peterson’s Institute, this is a question for the Secretary and it’s really—what lessons do you, as the government of Catalonia, draw from recent events in Greece, because you mentioned in your remarks that realpolitik would suggest that in the real world Europe would take into consideration the movement of millions of people. But I would suggest that that’s a profound misunderstanding of realpolitik in Europe because if that was true, then the European Union would have respected fully the Greek Referendum on the bailout package.
20 So it strikes me that in fact the realpolitik of Europe works very much a different way then what you suggest because it seems to me that in fact, Europe responses in a very aggressive way of people trying to unilaterally change things. In the case of Greece it was the proposition of the bail out. But what you’re trying to do is also a unilateral change and I would suggest that the kind of support that you hope to maybe get from the European Union or Euro area institutions will not be materialized. So you’re going to end up in a situation, in economic terms, not very dissimilar to where Greece ultimately ended up over the summer. And I’m just wondering if you share that view or not.
Roger Albinyana: Not at all, in fact—well first there was a comment from Dr. Ubide placing that Greece economy and the Catalan economy is more or less at the same level. I don’t know the facts, the data that you have. The last data that you have from Greece but the economic situation is completely different, not to say the macroeconomic but also the applied economic data.
That being said, the lesson that we have learned from Greece is that despite there were opinions, strong opinions, not only in national parliaments but also in national governments in many important countries, that Greece should leave the Eurozone—and I don’t want to quote here any important minister in Europe who was in favor of kicking out Greece from the Eurozone and the Euro system—at the end Greece stayed.
You can be critical on the way that this has been handled, but Greece is still a member of the Eurozone, of the economic and monetary union, despite these voices and despite the pressure from the probably some economic important economic sector that wanted Greece out of the Euro. So, why?
Well, first of all, because the European Union is a project of integration, not of disintegration. It’s a project of integration. And of course, expelling Greece from the Eurozone would have send a complete wrong message on how this European project has to be built. But secondly, because there is an interest of EU member states to keep Greece inside these programs, these austerity programs, so that eventually we will see they repay what the different EU member states have been lending, like Spain for instance, without taking into account the last program that was adopted, the third program, bailout program that was adopted only a few weeks ago has already lent to Greece around €26 billion.
So it’s a big amount of money. So of course all these member states, they want their money back and it’s normal. It’s taxpayers’ money. So at the end of the day, the economic interest, the realpolitik rather than the opinions of certain important ministers, members of parliament and economic stakeholders prevailed. And with Catalonia it will be the same. I
21 said before we have 6,000 multinationals established in Catalonia. The largest investment, German investment in Spain is located in Catalonia. It’s Volkswagen. Do you think that Volkswagen would be happy, would be glad to simply say, “Now Catalans have voted to leave Spain. They are going to leave unilaterally,” which is not the case? I will explain it later. “So we will simply relocate our plants. And we will lose tons of money.”
Now I think the president of Volkswagen is going to put a lot pressure into the German government so that Spain sits down on the table and negotiates as Dr.--and we fully agree on that part, negotiate with Catalan Government, because again, we do not want to drive this process into unilateral trend. It’s not the objective as said. We want to do things as matters in agreement with the Spanish government. But they need to understand that the Catalan people have the right to decide and Catalan people will decide. And what the Catalan people would decide will have to be negotiated and will have to be eventually implemented.
Adam Posen: Okay Angel, do you want to comment on this? No. We have time I believe for one more question from the floor. Do I see an eager volunteer? Then allow me to pose one more question. Mr. Secretary we’ve talked a lot about the economics. We got into the question of the multilateral—excuse me—the multinational companies investing in Spain.
I guess the question going forward is, one advantage that is usually held out for a small government—whether its New Jersey or Catalonia—is the ability to advocate for its particular interests, so in a world of global competition where frankly Volkswagen can move its plant for any number of reasons, so it can have nothing to do with Catalan politics at any time, what is the plans for Catalan industry, the policy for Catalonian trade competitiveness, for Catalonian investment going forward? Does the government have a distinct set of plans?
And I raise this in part because one fact I’m sure all facts Angel raised were true but one particularly I know happens to be true is the idea that Catalonia has be riding a trade deficit with the rest of Europe as opposed to its surplus with the rest of Spain. What do you have in mind?
Roger Albinyana: Well of course the government runs its strategic plans on reindustrialization and that’s how we call it with 9 main objectives. As you can imagine, Catalonia has dynamic industrial base average-wise because, of course, we are not Slovakia or Hungary or the Baltic states that might have more competitive advantages in order to attract certain types of business. But we have many different sectors from chemicals to automotive components, to biofarming. In fact, one of the largest investors or the most strategic, let’s put it like that, the most strategic Catalan
22 investor in the US is [inaudible 01:13:38] which is a well-known company for instance.
So the government, this government has been very business friendly oriented. And of course the problem that we have is that we have limited instruments, public policy instruments, to encourage more types of policies directed or oriented to business. Like for instance, policies which have to do with lowering taxation for business. We don’t have the competencies to regulate the level of taxes. But apart from that, of course, this is just a trick because at the end of the day what matters is that you have a talented human capital and we are working on that. We have good universities, perhaps too many—but this is another debate—because they are all spread around the territory.
We are now converting and reforming the professional system trying to import the Austria and Bavarian system into the Catalan professional dual system so that that can also help reduce the amount of unemployment, especially amongst young people. And the other element that we’re trying to work hard is infrastructure, of course, and that was mentioned by Dr. also. Catalonia has a good infrastructure but not good enough in some aspects you know. But I want, not to go in too much detail.
Adam Posen: No, no, no, no.
Roger Albinyana: But we are working on that and of course the message I want to convey is that a large portion of the Catalan society believes that with its own state we would have more instruments, not only policy based but also money based, resources based in order to be a more competitive and open economy to the world.
Adam Posen: Angel do you—?
Dr. Angel Ubide: I just want to correct, just for the sake of correctness right. It’s not a majority of the Catalan people. The elections haven’t taken place yet. I don’t think the polls are showing any conclusive evidence in one direction or another.
Roger Albinyana: Excuse me, just to correct you, I was not referring to a majority on the question of independence, I was saying that there is a majority of the Catalan population that believes that the level of self-government that we have is clearly insufficient. And here there is a strong majority and this is something I—because the only two parties that are opposed to that is the People’s Party and the Citizen’s Party
Dr. Angel Ubide: Okay
23 Roger Albinyana: Even your party in Catalonia that supports that too.
Dr. Angel Ubide: I’ll take that. Then let me then clarify that that majority does not necessarily argue that the best way ahead would be independence. That majority is sort of a split between those who argue independence would be the best solution and those who argue that a negotiation with Spain with goodwill would be the best solution
Adam Posen: Okay, let me end it there. Let me say thank you to Angel Ubide who is our expert on so many things, but who stepped up today as a proud Spanish citizen, as well as a market informed economist, to talk about the implications of this issue. Thank you for engaging. And let me say particularly my thanks to Secretary Albinyana and the government of Catalonia because you chose to, as I said before, you chose to engage right ahead of the elections with an American audience, with a market audience. You chose to engage and economic issues even though, as you clearly stated, much of the motivation for this is a political motivation, is an independence motivation. And I am grateful to you for bringing forward your views on what’s an incredibly important issue, not just for the people of Spain, not just for the people of Europe, but will be precedent setting and have repercussion throughout the world. So thank you very much for joining us. This meeting is adjourned.
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