Andreu Mas-Colell makes an unlikely political assassin. Short, soft-spoken and 68, he is revered as one of the world’s leading mathematical economists and spent much of his career in a university classroom, looking decidedly professorial.
But he is also the Catalan Economics Minister and if he gets his way, Spain as we know it will cease to exist. That’s because Mr. Mas-Colell, like Catalan President Artur Mas, is a separatist and wants to remove the region of Catalonia from the Spanish fold.
Catalonia is holding an election on Nov. 25, and if it goes in favour of the CDC, the liberal nationalist party Mr. Mas-Colell leads, the regional government has vowed to hold a referendum on sovereignty. If Catalonia were to secede, it would be the 13th-largest country in the European Union, which now has 27 members, putting it roughly equal with Romania and the Czech Republic.
The threat of “Hispanocide,” as some Spanish editorial writers have called it, is rattling Spain – and the euro zone – when both need it least. Catalonia is a double threat to Madrid. A serious secession attempt by the economically powerful region would trigger a political crisis that could easily scare off sovereign bond investors, raising Spain’s financing costs and perhaps prompting a costly bailout of the euro area’s fourth-largest economy, one that is nearly the size of Canada’s. In a recent note, Deutsche Bank economists said that “the current turmoil in Catalonia could be one of the catalysts which ultimately would force Spain into officially requesting European support.”
In an interview in his Barcelona office on Friday, Mr. Mas-Colell admitted that Catalonia’s sovereignty campaign could be viewed by European politicians and technocrats as a destabilizing force for both the currency union and for Spain, which is suffering its worst economic downturn since the Second World War. “I absolutely see that,” he said.
But he insisted that Catalonian independence would not automatically trigger a fresh crisis. Catalonia, he said, has no intention of leaving the euro zone and printing its own currency. He thinks Catalonia would be economically stronger if it were on its own, to the benefit of all of Europe. “We know how to run this economy,” he said. “We are not running our economy. Madrid is running our economy.”
This view that Catalonia can go it alone is considered outrageous by the Spanish government and many economists. Catalonia’s economy, like Spain’s, is a mess. The region – which is officially known as an “autonomous community” in the language of Spanish federalism – is in recession and its jobless rate, at 23 per cent, is only slightly less grim that the national jobless rate of 25 per cent (and rising).
Catalonia, with a junk credit rating, has been shut out of the debt markets and has gone begging to Madrid for about €5-billion ($6.3-billion) in emergency loans, even as it tries to distance itself from the centre-right government of Mariano Rajoy, who is philosophically opposed to separation and considers it unconstitutional. “So what happens to Catalonia when the gravy train from Spain goes, as it will if Catalonia secedes?” said Marshall Auerback of New York’s Institute for New Economic Thinking.
Mr. Mas-Colell has an answer to that. He argues that Catalonia, traditionally one of richest regions of Spain, perennially ships more tax money to Madrid than it receives in national government spending. In other words, association with Spain is a drain on Catalonia’s wealth.
Data provided by Catalonia’s economy department claim that its “fiscal deficit” with the central government is equivalent to 6 per cent to 8 per cent of Catalonian gross domestic product a year. In 2009, that translated into Catalonia delivering €16.4-billion more to Madrid than it got back, though the figures are contested by the national government.
Catalonia, in Spain’s northeast along the border with France, has had a thriving autonomy movement for decades. Catalans have their own language and their economy, based on manufacturing and trade, has always been strong (at least until Spain’s property collapse in 2007 and 2008 hit all parts of the country like a cluster bomb). The self-determination movement ramped up during the dictatorship of Francisco Franco, who used executions to try to crush Catalan nationalism. In 1971, Catalan independence became a global story when Pau Casals, a violoncello master, delivered his famous “I am a Catalan” speech before playing a song at the opening of the United Nations General Assembly.
Some recent polls have shown that about 50 per cent of Catalans are in favour of breaking away from Spain, though others show less support for sovereignty. The euro crisis seems to have encouraged the sovereignty movement as the Spanish government forces the country’s regions to make painful cuts in the name of austerity. Mr. Mas-Colell expects Catalan GDP to fall about 1 per cent this year, with no improvement next year as the euro zone slides back into recession.
Mr. Rajoy’s government has given no hint that it is willing to give Catalonia more power over tax collection and spending, even though a few regions have considerable tax autonomy. One of them, the Basque Country, considers itself a nation within a nation. “We would like to have full fiscal responsibility to control entirely our fiscal income [but] our hands are tied in every way,” Mr. Mas-Colell said.
Several years could pass before Catalonia holds a referendum on independence, assuming the inevitable constitutional battle goes its way. In the meantime, Catalonia is stuck in its role as Spain’s biggest economic region, responsible for 18.7 per cent of GDP, but one that is suffering enormously.
Europe has already come to Spain’s rescue once, offering it up to €100-billion to recapitalize its banks, which were nearly destroyed by the property market collapse and the recession.
A sovereign bailout may follow. The European Stability Mechanism, the new €500-billion rescue fund, and the European Central Bank have agreed to buy unlimited amounts of the bonds of any euro zone country that is struggling to retain access to the debt markets. The goal is to bring down government funding costs to prevent a repeat of the Greek, Irish and Portuguese calamities.
Mr. Rajoy, the Prime Minister, is not ruling out tapping into the ESM/ECB bailout program but has given no hint when that might happen or even if it will happen. “The general expectation is that it may happen,” Mr. Mas-Colell said. “If it happens, I would not look at it as something terrible.”
Stronger Spanish finances are in Catalonia’s best interests as long as Catalonia cannot raise its own debt. “Our only bank is the Spanish Treasury,” Mr. Mas-Colell said.
Translation: Catalan separation may come, but in the meantime Catalonia is better of within Spain than outside of it.
Population: 7.5 million
Rank in GDP among the 27 EU countries if Catalonia were independent: 13th
Rank in GDP per capita: 10th
Jobless rate: 23 per cent
Proportion of Spanish GDP generated by Catalonia: 19 per cent
Revenue of soccer club FC Barcelona in 2010-11 season: €451-million