Thursday, July 24, 2014

The birth of a new state in Europe

Since the massive demonstration of the Catalan people in September 2012, but specially since the Catalan Way human chain last September, when more than 1.6 million people joined hands to demand independence for Catalonia, many Spanish politicians have been predicting all kinds of disasters were Catalonia to become an independent country. Fortunately, as we will see below, many economists and academics have produced reports refuting this point of view, so far from the economic and political reality of an independent Catalonia. This article sets out to circulate these arguments as far and wide as possible, with the goal of removing unfounded, artificial fears. Fear should never be the guiding force of a nation.

Firstly, we analyze the threat that Catalonia would be banned from Europe. The concept "banned from Europe" does not really make sense because Europe is a continent and Catalonia, for obvious geographical reasons, cannot be banned from it. However, if we speak of political Europe, this is made up of a multitude of treaties, conventions and institutions, each with its own different rules.

In this sense, the most important in the case of Catalan independence is that companies established in Catalonia should enjoy the free movement of goods, services, capital and people among European countries. For this purpose, it is not necessary to become a member of European Union. In fact, this objective would be achieved if Catalonia becomes a member of the European Economic Area (EEA). The EEA is a European common market formed by the European Union (EU) member states plus Norway, Iceland and Liechtenstein. While becoming a full EU member requires the unanimous vote of all state members, Catalonia need only attain a qualified majority to join the EEA (19 of the 28 member countries). Therefore, Spain could not unilaterally block the accession of Catalonia to the EEA.

But why should European countries support Catalonia joining the EEA?

There are a lot of solid reasons that reinforce this, the most important being that Catalonia is the main route connecting Spain with the rest of Europe. Furthermore, there are over 5,300 companies that have set up facilities in Catalonia. These multinationals are not here to supply the Catalan market, but to supply the EEA market (including Spain). The imposition of customs duties on Catalan exports would damage the interests of these multinationals. And these interests are enormous: Seat-Volkswagen (Germany), Renault-Nissan Alliance (France), BASF (Germany), Solvay (Belgium), Carrefour (France) and thousands of other foreign companies have made strategic investments in Catalonia.

The second argument used by Spanish politicians is that a Catalan state cannot have the Euro as its legal currency. This is a ridiculous and unrealistic argument because you can use the Euro without belonging to the Eurozone (like Montenegro or Andorra). Nevertheless, the European Union needs Catalonia in the Eurozone because the two main Catalan banks (CaixaBank and Banc Sabadell) are classed as systemic for the European financial market, i.e., if these two banks were to fail it could seriously destabilize the whole Eurozone. Therefore, the European Central Bank will have a firm interest in having the Catalan banks under its supervision.

To summarize, we have shown that if Catalonia becomes a new state, Europe will not leave Catalonia to its fate. It is not the end of the world; it is simply the birth of a new state in Europe.

Economists for Independence, Economy Section of the Catalan National Assembly.

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