Catalonia's Challenge to Spain

Is this a soap opera? Four Spanish EU parliamentarians send a letter to the EU Commissioner Viviane Reding asking for protection by the European Union against the Spanish government – their own government! We Europeans know about the claims to independence of Basques and Catalans. These are claims of considerable minorities in the Basque Country and even of a majority in Catalonia, if we discount the wide split between Catalan parties of the left and parties of the right.(*) These claims have been heard for decades, nay for centuries. Their fate has been like that of any other political demands that keep being repeated, but are ultimately not acted upon. Such claims may be (as in these cases they are) respected as legitimate, but in the end not taken seriously; they are filed away as curiosities. This is how Europe has dealt with the aspirations of the Basque Country and Catalonia whenever they have turned up.

So what is different this time? How can an admittedly major region of a major European country suddenly raise such a ruckus about its autonomy that threats of countermeasures of all kinds – bar none, even military intervention - begin to fly?

The notice of Catalan President Artur Mas of an advance election to the Catalan legislature, el Parlament, on November 25 has injected additional nervousness into Spanish politics at a time when there already existed intense pressure from street protests and the hardship of the economic crisis in the country at large. The jittery state of the reactions has to do with the election being a step in the reassertion of the old Catalan claim to independence, previously never taken completely seriously. This time, however, it appears to be different, not least due to Spain's exposed situation in the euro crisis.

The background is the fact that the Spanish system for collecting taxes and dividing authority between the central government in Madrid and the regional governments in the 19 autonomous communities was only sketchily designed from the start (in the 1978 constitution). The legislation and executive provisions of the financial authorities seem at a glance to be adequate, but have obviously not been followed up in practice. This gap in executive follow-up has allowed the regions and their underlying governing levels – the provinces and the municipalities - to amass debt, way beyond what they should have. As long as the economy was booming there was no visible problem, but after the turn of the tide that is all different. The fiscal system has been put to an extreme test in the current hardship and appears not to be able to survive it without major revision. And coping with crisis and revising the system at the same time is not a good approach.

Most of the autonomous communities (regions) of Spain are currently unable to service their debt. Madrid this year set up a sizable relief fund to help them out. Catalonia and most other regions have requested a share of that fund, which they will probably receive. However, Catalonia has later come back and asked for as much more, which would, if granted, leave them in possession of more than half of the entire fund. That second request has (understandably) been denied. Then Catalonia asked for – and was denied – the same fiscal status as two other autonomous communities, Pais Vasco (the Basque Country) and Navarra, who for historical reasons have a so called “fiscal pact” with Madrid.

This is where Spain is most at fault at the central level, and where the constitutional system fails. Catalonia claims to be a victim of an unjust system because they pay much more to the central government than they get back. But for starters, this is a much used system in developed industrialized countries. Among countries with a similarly decentralized structure as Spain, Germany has it, Switzerland has it, Canada and Australia have it. Moreover, in more simply structured, smaller centralized countries like Norway, Sweden and others, rich municipalities pay into a redistribution system that benefits the poorest municipalities. In all of these countries, the richer communities pay more into the country's governmental system than they receive back. Mind you, many of them don't think it is fair, and they all grumble. But it is standard governmental practice within the OECD. Moreover, studies of well-being in the Spanish autonomous communities show that Catalonia's living conditions place it among the four best endowed regions in Spain (figures for 2000 and 2006, Jurado & Perez-Mayo, Social Indicators Research, 2012). It is thus not surprising that they are asked to contribute more to their less favored compatriots.

A cross-national comparison of five countries with similar systems of redistribution (Australia, Canada, Germany, Spain and Switzerland) shows Spain to be quite ordinary among the rest, and indeed less harsh than other systems. In fact, Spain has the second softest of the tax transfer arrangements among these five countries. On the other hand, the monetary effects of these transfers are also less than in the four other countries except Switzerland. In other words, Spain has a fairly benign system with comparatively less impressive transfer results. (See the study by Hierro et al, Revista de Economía Aplicada, 2010.)

What is the problem then? Is Catalonia complaining without reason? Not as I see it. The complaints are just aimed at the wrong target. Where the Spanish system has gone wrong – in addition to not overseeing the communities' observance of the rules in force - is in allowing some of the regions, for historical reasons, to have a more advantageous organization than the others. The foral system has left Pais Vasco and Navarra in what one study has characterized as a “scandalously favorable” situation (Ángel de la Fuente, “Sobre el Pacto Fiscal y el sistema de Concierto.” Fundacion SEPI, 2012).

Although Angel seems to be speaking Catalonia's case, he is actually giving a quite even-handed evaluation in which his first judgment is that no government in a similar situation has allowed its subordinate regions to decide on their tax collection system by themselves. All other Spanish regions have offices of the central tax ministry (Hacienda) located throughout their territories. Not Pais Vasco and Navarra. Their agencies collect the taxes on behalf of the central government. The central government, therefore, is not participating in these communities' tax collection process. Hacienda are just handed over the money bags “at the border”, as it were.

My conclusion is therefore that Catalonia has a point, but the resolution is not to give them the same exceptional system. Rather, the solution must be to remove the foral system in Navarra and Pais Vasco and instate instead the one in force in the rest of Spain. That, of course, would be to challenge all the forces of nationalism in these regions and unleash a new battle of the regions.

Poor Spain.

(* Correction here of previous text. Catalan opinion favoring independence according to polls in November 2012 is 57%, similar results found in election of November 25, 2012, though  people holding this view were split between four parties of both left and right.)