Saturday, April 26, 2014

Should Catalonia Join The EU?


Would it be a good idea for Catalonia to join the European Union upon achieving independence? And; would it be able to if it wanted to?

Before I begin, I want to clarify my position: The choice on whether or not to seek membership in the EU belongs to the Catalans – I (as a non-citizen) am not trying to make this choice for you. This article merely seeks to outline the advantages and disadvantages associated with each option.

First, let’s analyze the “default” position: Catalonia joins the European Union. There are plenty of arguments in favor of this position – first of all, it makes intuitive sense for Catalonia to stay in the EU seeing as how Catalonia, being a part of Spain, is already a member of the Union. Catalan regulations are already in line with European regulations, and so there won’t be any complicated political process necessary to adjust the regulatory framework (a grueling process more recent members of the EU from Eastern Europe has had to go through). 

Secondly, since Catalonia is already part of the EU, businesses may feel safer with Catalonia staying that way after independence. Independence in itself is bound to create some instability (that’s just what happens when new states are formed), and Catalonia leaving the EU would lead to even greater instability and could in a worst case scenario make investors less prone to invest in Catalonia. Needless to say, this could prove disastrous to Catalonia’s already frail economy. There is also the issue of having to abandon the Euro and issue a new currency: Issuing a new currency and getting the markets to trust it is no child’s game by any means. A lot of exchange rate volatility can be expected initially, and unless the Catalan government can gain the market’s trust within a reasonable timeframe, there could be bank runs leading to financial collapse.

So far, this looks quite convincing. However, let’s take a look at the other side of the coin: Why might an independent Catalonia want to stay outside the EU? 

Starting with the economics, an independent Catalonia would not be burdened by regulation from the European Union, reducing the cost of doing business. It would also be free to negotiate its own trade agreements based on its own unique situation, rather than being forced into one-size-fits-all agreements negotiated by the European Union and by extension by the powerful countries in the European Union (such as Germany and France). 

While going without the euro would be a risky move initially, I believe that in the long run it is better for Catalonia to stay out. This is for two reasons: First of all, I do not believe the Eurozone has a future. While it is unlikely to collapse in the immediate future, the only thing that is holding it together is political determination from the powers that be – that is, from the President of the ECB, as well as the leaders of Germany and to a lesser extent the other Eurozone countries in northern Europe. The Eurozone hasn’t survived because it offers any economic benefits (it doesn’t); it has survived because the responsible politicians haven’t allowed it to fail. However, this can’t last forever: The way the Eurozone is currently built, some countries will always be in a crisis or in a bubble, due to the ECB interest rate being too low or too high for that country. Yes, the bailouts are over for now – but due to the construction flaws that were committed when the Eurozone was created, we can be certain that they will be back soon, and with a vengeance. There just isn’t one single interest rate that fits the entire European continent, and the countries for whom the interest rate fits (usually Germany) will have to subsidize – bail out – the countries for whom it doesn’t fit (usually that’ll be southern Europe) every few years. Even if, by luck, the ECB interest rate would happen to fit Catalonia’s needs, that would only mean that Catalonia’s economy will boom at the expense of the economies for which the interest rate doesn’t fit, and when crisis strikes these countries, Catalonia will be expected to contribute towards bailing them out the way Germany has done in recent years.

However, that scenario is of purely academic character: The interest rate set by ECB will never in reality be a good fit for a country like Spain OR Catalonia. It comes down to who has the most influence in the European Central Bank, and that’s Germany and France. The economies of these countries are out of sync with the economies of southern Europe, which makes sense since southern Europe relies more on agriculture and tourism than Germany and France which rely on industries and on the service sector to a greater extent. There are no signs of these economies becoming more closely integrated – that’s what they were hoping for when the Eurozone was created in case you were wondering – instead, they actually seem to be sliding apart even further.

Another benefit of being outside the Eurozone is that Catalonia could finally get an appropriately valued currency. Of course, creating a currency from scratch is, as I mentioned above, not in any way easy – but given the very uncertain and most likely dark future of the southern Eurozone countries, this is still the better option. A new currency would be much weaker than the euro and have a higher rate of inflation, which will help tourism – indeed, I wonder how many people will prefer Malaga to Barcelona if Malaga is twice as expensive (as it would be)? It’s hard to predict of course, but it’s notable that Greece has lost a lot of tourists since joining the euro, because Turkey (which is right next door) is now so much cheaper. 

Finally, there are ideological reasons to oppose membership in the European Union. The EU is a supranational union which infringes on the independence of its member countries. Every year, the European Union becomes more powerful. More and more power is concentrated into the hands of unelected bureaucrats. Let’s not fool ourselves; this process is not going to be reversed. While the Eurozone crisis is often thought of as weakening the European Union, so far, it has actually had the opposite effect: The Eurozone crisis allowed unelected bureaucrats – troikas – appointed by (among others) the EU to control the fiscal policies of entire countries! And, with further integration being the only solution that is being promoted by the EU to prevent future crises, it is safe to say that the EU and the bureaucrats who control it are not going to be giving up any of their power anytime soon. It seems to me that it would be a waste if Catalonia, upon achieving independence from Madrid, immediately decides to give it away to Brussels.

This however does not mean that Catalonia should strive for isolation. Catalonia’s economy depends on exports and foreign investment – but there is no reason to believe that simply staying out of the EU would cause foreign investment to cease. The best option in my opinion is to have an arrangement similar to Switzerland or Norway: Catalonia remains a member of the European Economic Area (or, arranges bilateral free trade agreements), allowing for free trade with the rest of Europe, but without the massive political supranational union that comes with full EU membership. 

Finally, we have to ask ourselves: Is this discussion only academic in nature? It could be, given that Spain could in theory block Catalonia from membership of the European Union. Remember, it only takes the objection of one EU country to block Catalonia from joining. And, let’s not kid ourselves: If any country will object, it will be Spain. 

Logically, Spain shouldn’t try to block Catalonia’s membership. They trade a lot with Catalonia after all, so it would be their – and everyone else’s – loss. Really, there would be no winners from Spain managing to block Catalonia from joining the EU or the EEA. However, the fact that there is no rational basis to pursue a certain course of action has never prevented Partido Popular from pursuing that course of action in the past. 

First, PP, being irrational Spanish imperialists, may decide that blocking Catalonia from the European free trade area would be worth it: Sure, it will hurt Spain, but it will also hurt Catalonia – and no doubt PP will want revenge on the Catalans for escaping their empire.

If this happens, Catalonia in my opinion should retaliate by threatening to default on its share of the Spanish government debt – the European Union and in particular the ECB would hate for that to happen as it would most likely reignite the Eurozone crisis, and if the Spanish government doesn’t fold immediately, the pressure from the ECB will soon ensure that it does.

But secondly, even if PP isn’t intentionally trying to delay Catalonia’s EU/EEA membership, Catalonia will most likely have to spend some time outside the EU in the immediate aftermath of independence. This comes from the fact that the EU is a huge, slow bureaucratic machine which rarely does things in a speedily manner; this goes not only for membership applications but for just about everything. Therefore, the day after Catalonia votes for independence, the Catalan government must begin negotiations with the EU not only regarding membership (in the EU or EEA), but also regarding temporary trade agreements that would take effect on independence day and last until Catalonia becomes a member of either the EU or the EEA (or another permanent arrangement is made).

Once again, this issue is for the people of Catalonia to resolve; I am merely offering my opinion the way I see it as an outsider. Thank you for reading.



John Gustavsson
@nationstatist


Previous articles from the same author:
In Spain, Fascism Is The New Black
Secession: Catalonia And The “Bad Precedent” Argument
Catalonia, The EU, And The Spanish Suicide Bomber

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