Which of the following best explains why the region of catalonia in spain could be a viable country?

The democratic Constitution of 1978: Some historical and political background and the creation of the ‘State of the Autonomies’

2The historic problem of integration of Catalonia within the Spanish state exists, at least, since the eighteenth century, after the Succession War, a conflict in which many European countries were involved. One of the main reasons in the integration difficulty lies in the historical asymmetry between political power and economic power in Spain. The centre (Castille) has had political and military power, while the periphery (Catalonia and Basque Country) have led the Spanish economy.

3In contrast with what happened in other countries, in Spain, nation state and national market have not gone hand to hand. Economic weakness didn’t allow the centre to perform the process of “national” assimilation of former “peripheral” nations and cultures that took place in other countries (the creation of a national market as a powerful and effective nation –maker). In Spain, the so called ‘peripheral nations’ survived. In some way, Spain has always been a frustrated nation state.

4In the second half of the nineteenth century, as Catalonia emerged as a powerful industrial region leading the Spanish economy, a political movement of national affirmation arose with special strength: “Catalanism”. “Catalanism” had two basic goals: to achieve the self-government and the acknowledgement of Catalonia as a nation; and to transform and modernise the Spanish state, making it able to provide the needs an industrial society required.

5“Catalanism” has been a transversal, large movement that for most than a century and a half has occupied the mainstream of Catalan politics (both at the right and at the left of the political spectrum). In the short periods of autonomy and democracy before the 1936-1939 Civil War (in the 1910’s and in the 1930’s during the Second Republic), and since 1977, with the establishment of a democratic monarchy after the death of Franco, “Catalanist” parties have won all the elections held in Catalonia.

6After the Franco’s dictatorship, the democratic Constitution of 1978 seemed to put an end to the historic problem of integration of Catalonia and the Basque Country in Spain. The main Catalan parties played an essential role in its elaboration. In a sense, the Constitution contained an implicit agreement: mainstream “Catalanists” parties renounced to their ultimate aspirations for secessionism, and the main democratic Spanish forces to the “renaissance” of the traditional Spanish state: unitary, strongly centralised and deeply impregnated of Spanish nationalism.

7The Generalitat (the Catalan autonomous government) was restored in 1977, fourth months after the first democratic elections were held. The former President, Josep Tarradellas, came back from the exile to Catalonia to be recognised as such, in the only event during the Spanish democratic transition that supposed a direct continuity between the old Republican legitimacy, broken with the coup d’État of Franco, and the new democratic legitimacy born after his death.

8The Constitution of 1978 established what has been called “the State of Autonomies”, with the creation of the Autonomous Communities, an intermediate level of government with political power and a legislative assembly. In that moment the acceptance of self-government was seen as a historical step.

9To obtain an agreement on the nature of peripheral countries, the Constitution introduced what was then considered a very important distinction between nationalities and regions. The Constitution distinguished, too, between two types of Autonomous Communities, regarding the range and level of responsibilities they could assume, and also the speed in becoming one.

10However, in practice the autonomy was spread to all Spanish regions in similar terms, with the very important exception of the specific financial regimes applied to the Basque Country and Navarra. The generalisation of autonomy did in fact lead to a watering down of the quality and intensity of responsibilities and resources at the Autonomous Community level of Government.

11The Constitution granted nonetheless stability for a period of about twenty years (1980-2000). Catalonia has at present an autonomous government with a huge budget, a Parliament, and direct responsibilities in the delivery of basic public services. However, financial and economic problems were always present in some crucial areas: the delimitation of responsibilities, the financing system of the autonomy and the allocation of central government expenditures (notably, infrastructures) in Catalonia.

12The “Statute of Autonomy” of Catalonia (the by-Constitution that sets up the rules and institutions of the self-government of Catalonia) was enacted in 1979, and the first Catalan elections took place in 1980. Since then, a large process of devolution of responsibilities [1] from the central government to the autonomous governments occurred.

13The Autonomous Communities represented in 2010 the 34.6% of the total expenditure of the public sector (Table 1), a very significant figure, higher than in many federal countries.

Table 1

Distribution of total public expenditure for levels of government in Spain (1978-2010) (% of total)

Distribution of total public expenditure for levels of government in Spain (1978-2010) (% of total)

(P) Provisional.

Table 2

Expenditure of Generalitat of Catalonia by functions (% of total)*

Expenditure of Generalitat of Catalonia by functions (% of total)*

* Includes environment, information and knowledge society and telecomunications, housing, research, culture and sports.

14Table 2 shows the distribution of expenditure for the government of Catalonia [2]. In 2012 it reached 37.5 billion euros, (around 18.75% of GDP). The key responsibilities of autonomous governments are health (23.8% of all public expenditure) and education (14.8%). In 2012, due to the effects of the recession and the public deficits the debt burden soared to the 14.8% of the total. The responsibilities are very similar across Autonomous Communities, although Catalonia has a special status in some particular fields, such as Police and Justice which jointly represent 5.4% of total expenditure.

15In general, in different public policy areas different levels of government share concurrently some degree of responsibilities with different powers. For example, it is very usual that the central government has the power to pass a basic law, and autonomous governments to pass second level laws and exercise executive powers. Therefore, a relatively high budget doesn’t necessarily mean an equally high political power in decision making in any functional field of responsibility.

16In a way, in many fields, the Autonomous Communities have low quality responsibilities, of a rather more administrative than political nature. This is mostly the result of an ambiguous and insufficient constitutional design, but also of the interpretation made by the Constitutional Court about the room and power that the Constitution allows to Autonomous Communities. When appeals have been raised by central government or autonomous governments before the Constitutional Court [3], the latter have usually issued rather restrictive sentences, especially since the second half of the 1990s.

Financing Autonomous Communities

17The essential traits of the finances of autonomous communities have evolved considerably throughout the years. In the early days their revenues were essentially grants from the central government, by an amount equivalent to the expenditure transferred. Over time the system was slowly improved in different aspects. At present every five years a negotiation takes place between central government and all Autonomous Communities.

18Table 3 shows the current distribution of resources for the government of Catalonia [4]. After the last reform, in 2009, 73% of total revenue comes from taxes, 8% from grants, and around 18% are other revenue. Three big categories of taxes can be established. Firstly, own taxes, which represent only 1.6% of total revenue. The second group are totally ceded taxes, and represent around 15% of total taxes. They are created for the central government, which establishes their basic elements. The Autonomous Communities have some normative responsibility (which can be very large, especially when deciding the tax rate), receive all the yields coming from them and also have the responsibility to collect them.

Table 3

Revenues of Generalitat of Catalonia (2012)1,2,3,4

Revenues of Generalitat of Catalonia (2012)1,2,3,4

1. Budgetary previsions;
2. Surcharge over the central government excise;
3. Not includes Competitiveness Fund;
4. Includes income from assets, pass through grants from central government to local governments, capital grants from central government and other minor reveunes.

19Shared taxes are the third group, which represent around 82.7% of total taxes and 61% of total revenue. The revenues produced by the main taxes of the fiscal system, excluding corporate tax, are shared between central government and autonomous governments: personal income tax (50%-50%), value added tax (50%-50%) and excises (58%-42%), for Autonomous Communities and central government, respectively.

20Grants from the central government represent less than 10% of total revenue of the government of Catalonia. The so-called “Fundamental Public Services Guarantee Fund” is a horizontal partial equalisation mechanism. The autonomous governments put in a common pool the 75% of their potential tax capacity, and the total amount is distributed between all the autonomous communities according to their population adjusted by needs. The most prosperous autonomous communities, such as Catalonia, have a negative grant to be brought to the pool, and the poorest ones, a positive grant coming from this horizontal mechanism.

21Other two funds, the “Global Sufficiency Fund” and the “Competitiveness Fund”, are funded by central government. The former was designed as a guarantee so that all autonomous communities at least maintained the same level of revenue obtained with the previous mechanism. The “Competitiveness Fund” is in fact a sub-fund of a broader fund called “Cooperation Fund”. This Fund was set up in the 2009 reform, and it is allocated to the regions where the difference between “fiscal capacity” (how much they contribute to the “common pool”) and revenue (how much they receive) is larger.

22Autonomous public deficit and debt were relatively controlled until the economic crisis started in 2008. In 2007 debt represented in Catalonia an 8.0% of GDP. However, this figure soared with the recession to more than 25% in 2012.

23There have always been statutory limits for the public deficit, borrowing and indebtedness of Autonomous Communities. The Spanish Parliament establishes every year the public deficit targets of different levels of government [5]. In the case of autonomous governments, these are decided on the basis of a proposal previously agreed by the “Fiscal and Financial Policy Council”, a body where financial ministers of both central and autonomous governments sit together. The limitations have severely hardened in the last years because of both European and Spanish new regulations resulting from the fiscal consolidation policies.

24The financial issues have been a permanent cause of struggle between Catalonia and Spain. There are two basic types of financial complaints. Firstly, a lot of criticism is addressed to the financing system of Catalan government; both because it provides only a limited power to decide over the taxes that are paid in Catalonia (low quality of fiscal responsibility) and also because the amount received is considered unsatisfactory.

25This is in turn mainly attributed to the excessive solidarity produced by a system that leads to over equalisation. Table 4 shows the effects of implicit and explicit perequation mechanisms contained in the financing system of autonomous communities. While Catalan citizens make a tax contribution per capita to the funding of total autonomous governments that is 20% above the average, the resources per capita available for the Catalan government are around the average. Catalonia is ranked third out of fifteen Autonomous Communities in terms of tax contribution per capita (i.e., before equalisation) and only ninth in terms of autonomous resources per capita (i.e., after equalisation).

Table 4

Equalization Effect of Autonomous Financing System

Equalization Effect of Autonomous Financing System

26The new model implementing the new Statute of Autonomy passed in 2009, and meant an important change for Catalonia. Before that year, the Generalitat revenues per capita were 94 (being 100 the average of all Autonomous Communities). Immediately after the reform (2009), they moved to 102.3 (and to 103.6 considering adjusted population) and then they went down again to 99.4 in 2011 (Table 4).

27Secondly, criticisms also exist because central government expenditure allocated in Catalonia is considered unsatisfactory. Usually, the percentage of central government expenditure in Catalonia has been around 12-14%, while the percentage of population has been around 16% and of GDP around 20%. Notably, this has meant an insufficient infrastructures investment, with harmful effects on economic growth. Actually, the criticisms regarding a radial, Madrid based conception of Spain are a permanent feature in the Catalan political debate.

28Awareness of a historical problem with the insufficient level of central government investment in Catalonia existed in both Spain and in Catalonia when a new “Statute of Autonomy” for Catalonia was enacted in 2006. This is why one of its most important clauses established the duty for the central government to allocate in Catalonia during seven years a percentage of total infrastructure investment at least equal to its share of the GDP.

29However, the actual effects of this clause have been very limited because of breaches by the central government, the sharp fall of central government investment as a consequence of the crisis and the fiscal consolidation, and the very flexible interpretation of the compulsory nature of the clause made by the Constitutional Court. As a result, a clause that should in theory have had beneficial effects on the relation Catalonia-Spain, has eventually produced the opposite consequence, with the feeling of frustration in the Catalan society increasing and the strong generalised belief that the agreements reached with Spanish state are never respected.

The break-up of the constitutional pact and possible scenarios ahead

30The relationship between Catalonia and Spain is currently nearing the end of the cycle that started during the transition, period that lapsed from de dictatorship to the democracy, and especially with the democratic Constitution of 1978. Many reasons have led to a progressive deterioration of the Constitutional agreement. The most remarkable one is probably the failure in approving a new “Statute of Autonomy” in the second half of the 2000’s. Although the “Statute of Autonomy” was not abrogated, some of its essential aspects were eliminated or interpreted in a very restrictive way. A large majority of Catalans do not consider the Constitution as the appropriate framework for self-government since the Constitutional Court declared the “Statute of Autonomy” for Catalonia unconstitutional in 2010. Sovereignism now is in the mainstream of Catalan politics. Currently, the main point of the agenda in Catalonia is to hold a referendum in which the Catalan people could decide on the link between Catalonia and Spain.

31So far, the positions about the referendum are deeply opposed: while it is backed by nearly eighty per cent of Catalan society, the central government is not planning to allow that a referendum is held, on the basis that it is forbidden by the Constitution. At this point in time the real struggle is not yet for independence but for the referendum on self-determination (which is called “the right to decide”). In fact, there are political parties which are pro referendum but not pro-independence.

32In this context, in theory, four hypothetical scenarios can be envisaged [6]. Going from more to less centralisation, the first scenario would be the “Spanish nationalist” involution. This scenario in turn contains two sub-scenarios, a strong involution leading to a centralist revision of the constitutional framework; and a “soft” involution, in line with the restrictive interpretation of constitutional precepts already made in the last years. The second scenario would be a constitutional reform that introduced some kind of generalised and explicit federalism. The third one would be a specific and bilateral deal for Catalonia within Spain. The fourth scenario is the secession, which also contains two sub-scenarios, depending on whether secession leads Catalonia to be within or outside the European Union.

33In the next sections, we will limit this analysis to two basic scenarios: the staying together scenarios (which include the federalist and the special deal for Catalonia ones) and the secession scenario. We do not analyse the implications of the centralist revision scenario –essentially, because it is not a real solution to the conflict. We can mention Spolaore (2010, p 343), who affirms that the stability of federalist systems crucially depends on the degree and the quality of decentralisation. In addition, this scenario would in many respects not be that different from the current situation.

The generalised federalist option

34Over the years many proposals, papers and reports have been issued about how to improve the economic and financial aspects of both the “State of Autonomies” and the specific situation of Catalonia. As we just mentioned, two basic scenarios could be considered in the staying together alternative: a generalised federalist option and a singular deal for Catalonia. The agenda of the federalist option is quite well known. Regarding its economic and financial aspects, it could be summed up in four main points.

35The first one is fiscal responsibility. The essential principle is that spending of Autonomous Governments should be largely funded by taxes levied by these governments and not by grants coming from central government. In addition, they should have both normative and administrative responsibility for these taxes, although it is well known that in some taxes (corporate tax, VAT) large limitations exist for having full fiscal sovereignty. In the Spanish case, there is significant scope to improve the present situation.

36The second point is equalisation. Most federal countries have explicit perequation systems. An explicit partial equalisation mechanism was adopted in Spain in 2009. But the reform was so cautious and contained so many safeguards that its effects have not been satisfactory. As Table 4 shows, the system still produces a strong over equalisation. There is therefore still plenty of scope for introducing further substantial improvements.

37The third point concerns redressing vertical fiscal imbalances (i.e., the ratio “potential revenues/expenditure needs” for central government is much larger than for autonomous governments). Some regular mechanism should be provided for updating the balance between relative tax potential and relative expenditures needs of Autonomous Communities and the central government.

38Finally, the fourth point is the participation of autonomous governments in decision-making by the state. A large part of tax and economic regulation as well as basic laws and economic decisions are undertaken at the state level. In some countries, an upper legislative chamber (the senate) which represents territorial interests exist. While different implementations are possible (for example, the German and United States formulae are quite different), the principle is the same. Some attempts have been made in Spain for reforming the Senate, but the results so far have been disappointing.

39A large consensus exists on the principles for a federal reform of the Constitution, less so on details and on their implementation. The problem is on the will to move toward a truly federal system. The Spanish system is a hybrid between a unitary system, with more administrative than political decentralisation, and a federal system biased towards the central government. Probably the failure of the process of the Statute of Autonomy of Catalonia (which was basically inspired by this model) has left this scenario deadly wounded. It is very likely that the time for a generalised federal solution in Spain is over.

The special deal for Catalonia scenario

40Another possible scenario within the staying together alternative is a special deal for Catalonia. One of the most decisive reasons for the current uneasiness in Catalonia is the permanent comparison with the much more favourable results obtained by the special financing system of the Basque Country (“Concierto”). The Basque government has full responsibility for the collection of all taxes (including VAT and corporate tax). An amount is returned to the state (“cupo”) to compensate central government for the provision of general services in the region. It has to be remarked that the last proposal coming from Catalonia to reform the financing system (the so-called “Fiscal Pact”) was clearly inspired by the system used for the Basque Country), and was presented to the central government in September 2012 with a very large support of political forces and civil society.

41Nowadays, the situation is not the same. In Catalonia, the tempos have accelerated, secessionism has soared and it will probably be difficult to obtain again general public support for the proposal that was then rejected by the central government. The main point of the agenda at present is none other than holding a referendum to decide on the link between Catalonia and Spain.

42It should not however be fully excluded that new options could appear in the course of the struggle to celebrate a referendum. One of them could be a special deal for Catalonia within Spain. The possibility that such a deal could be acceptable will depend on two key aspects: its contents and the guarantees of its fulfilment.

43At the moment, given the turn of events, it is difficult to conceive that this deal could be limited only to financial aspects. The political aspects have become decisive. Although it is not the goal of this contribution to analyse the potential content of this deal, there are three points that are probably essential. The first one is the acknowledgement of the right of self-determination, i.e., the right to leave. Secondly, there is the essential point of language. Catalan people, whether they speak Catalan or Castilian, don’t perceive the existence of a linguistic problem in Catalan society, where bilingualism is the norm. However, the permanent hostility of a large part of Spanish media and a flurry of decisions against the status of the Catalan language by the Spanish central courts are seen as a real threat. It is therefore very probable that an agreement would not be possible if it does not include the full transfer of linguistic responsibilities to the government of Catalonia.

44Thirdly, there are the economic and financial aspects. These concern three main questions: the adoption of an allocation rule for central government expenditure (infrastructures, especially) in Catalonia (similar to the one included in the Statute of Autonomy and later watered down by the decision of the Constitutional Court); the real scope for the Generalitat to have effective decision-making power on crucial points for the Catalan economy; and finally the financing system for the Generalitat of Catalonia.

Two main issues

Some further strategic issues

Is an independent Catalonia economically viable?

76As a conclusion, and regarding the key point of the viability of an independent Catalonia we should make three main remarks. The first one is that an independent Catalonia could be economically viable. How it would not be, when other much smaller countries, with less economic potential, less income per capita and a less diversified economy are i ndeed independent?

77The second one is that the problem is not the economic viability but the political viability, and it is the economic consequences from political difficulties (the continuity in the Euro zone, the troubles in financial markets and so on) that could have very high economic costs. The economic costs of transition depend more on the way the process is conducted than on the fundamentals. It is the process that is really important, i.e. whether it is a friendly or a conflictive process. As this is a political conflict, those that oppose independence for “political reasons” use the argument of economic no viability to back their thesis, in the same way that those that support independence for “political reasons” tend to very often underestimate the economic difficulties that it would be necessary to overcome to become an independent country.

78The third point is that an independent Catalonia could be viable, although not an isolated Catalonia. Economic viability requires internationalisation and interdependence. A Catalonia isolated from the international community would see a fall in the welfare and the prosperity of the Catalan citizens.