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Tuesday, October 16, 2012

European regionalisation: do two negatives make a positive?

As we've argued before, there's a lesson for the eurozone to learn from the all the semi or full-blown separatist movements across Europe; trying to impose central control on an inherently regionalised structure is extremely difficult and artificially imposing a top-down identity remains as challenging as ever. At the same time, should a region choose to leave an EU county it could, after negotiations, be absorbed by the European structure, which in turn would have a stabilising effect on the tumultuous politics that will follow.

Therefore, separatist movements across Europe simultaneously showcase both the weakness and strengths of the European project. However, what's clear is that the austerity sweeping Europe is not only creating tensions between national capitals and Brussels, but also national capitals and regions. Just in case you thought the eurozone was on the verge of a agreeing a transfer union....

Belgium

The Flemish are as unhappy as ever about their domestic transfer union, and this weekend, local elections in Belgium saw the moderate Flemish nationalist N-VA party make substantial gains, using the €16bn a year that Flanders sends to the Francophone region as a political springboard. A leader in Belgian daily De Morgen notes that that the N-VA's objections to "the left-wing tax government of [Belgian PM Elio] Di Rupo don't differ that much from "the criticism in other countries of the [eurozone] solidarity mechanism which keeps the Greeks or Spaniards afloat".

Spain

In Spain, the Catalan independence movement is stepping up a notch off the back of Madrid (and Brussels) imposed austerity measures. In September, a pro-independence rally in Barcelona (pictured) mustered between 600,000 and 1.5 million people depending on whether you ask the Catalan or national police. The Catalan government has said it wants to hold a referendum on independence, with a majority of Catalans in favour according to some polls. A motion to permit a referendum was voted down by a majority in the Spanish lower house and could trigger a constitutional crisis if Catalan PM Artur Mas goes ahead with the plans regardless. Spanish Prime Minister Mariano Rajoy has said holding a referendum without the central government's approval would violate the Spanish Constitution.

Italy

The Lega Nord party has been calling for the separation of Italy's northern regions from the rest of the country. Possibly the main difference between the Italian case and the others, is the fact that the geographical entity evoked by Lega Nord (the so-called 'Padania', including all the regions above the Po river) has never existed as an independent state. Furthermore, Lega Nord has usually been more or less aggressive in its pro-independence claims depending on whether the party was in government or in opposition. Nonetheless, many northern Italians do feel that too big a chunk of the taxes they pay is then used to fund 'dysfunctional' Southern regions. Potentially one to watch, especially if Lega Nord (as it looks likely at the moment) will stay in opposition after next year's elections. 

Germany

While there is no talk in Germany of an independent Bavaria just yet, in July the regional government announced that it will launch a complaint at the German Constitutional Court against the German system of "Equalization payments" between richer and poorer German Bundesländer. Bavaria is the main net contributor to this system with €7.3bn, sharing the burden with only three other states - Hessen and Baden-Württemberg and Hamburg). The rhetoric of Bavarian politicians on the eurozone crisis has also been notably tougher than that of other German politicians as we've noted here. Meanwhile, a recent Bild poll found that 46% of Germans were against the separate West-East solidarity income tax levy compared with 42% in favour.

United Kingdom 

In Scotland the Scottish National Party has won its battle for a independence referendum with Scots being given a single Yes/No question on independence to be held in 2014. The prospects of Scotland becoming independent have however, in contrast to other regions, been damaged by the eurozone crisis with previously favourable comparisons with Ireland and Iceland being turned into examples of the problems of small economies with oversized financial services industries. Other questions that are beginning to be asked are whether an independent Scotland will use the euro (decreasing in popularity) or retain the pound, remain in the EU or have to have border controls. It has also been noted, including by the EU Commission, that Scotland would have to negotiate its EU membership afresh rather than opting in by default off the UK's entry in 1973.

Meanwhile in Brussels...

European Council President Herman Van Rompuy has presented a report calling for a central eurozone 'Treasury' with a shared budget and eurobonds - very close to a full-blown trasnfer union.

In Brussels, the logic seems to be that two negatives make a positive.

8 comments:

Rik said...

Two negatives make a positive but five negatives remain a negative.

Several typing errors, looks a bit like I have typed it.

A point to watch is that from these 5, 3 would likely end in something going bankrupt. Putting the UK and Germany aside.
The Wallonie, as well as Southern Italy as well as the remainder of Spain would be bust. Even when a split was done on basis of GDP (and not simply a break away with leaving the Center with all the debt or on no of inhabitants basis).
Wallonie can never support 100% debt plus a 10% of its GDP deficit and with no real economic base to support the new country. It simply would be bust, only Greece would be worse. Flanders running away from Belgium of course the same result for the (wicket step-) motherland.
Southern Italy same thing. 125% debt with 10% deficit and no economic base.
Spain identical. Slightly better figure than the above but even higher than now unemployment. Only a troika pilot can think that is still sustainable. Plus likely a few others to follow and say good bye to the blackhole for nationalisted but also for simply financial reasons.

Anyway in the long run that would likely be a positive development. there are simply too many dysfunctional people, regions, countries in Europe. It can simply not afford anymore to subsidise those and keep a running economy and keep talent in your country and not moving to the US, Australia or Asia. This way long term dysfunctional regions would be forced to make changes. Do or die, marche ou crepe, the world's best stimulus. Not a nice one but probably a necesary one.

Countdown to November said...

You've definitely put forward five nice case studies, although I wouldn't say that there's any serious threats of independence or secession in Belgium, since there's a strong tradition of multinationalism and Germany, where the regional Christian Social Union is itself part of Merkel's ruling CDU.

When it comes to Italy, while the Lega Nord might push for outright secession, the chances of anything happening under a technocratic government are slim to none.

Finally, in terms of the UK, I think you've put it best: Scottish voters would prefer to be one with Britain (and, well, Commonwealth) than to be alone as a tiny member of the EU.

I actually just wrote a nice little piece on my own blog about the prospects of Scottish secession and what the Tories have to gain from independence.

Still, I think that secession will ultimately fail and Britain will in fact remain united as one 'Great' entity.

Rik said...

@Countdown
You miss a few things.
1. Re Belgium. It hardly matter much for the outside world if Belgium completely falls apart or becomes a country with 2,3,4 different parts all with its own taxation and budget.
The latter is also imho far more likely to happen than a real split.
But at the end of the day it means basically the same thing.
- Wallonie having to finance its huge deficits itself which is impossible.
- Wallonie therefor bankrupt.
- depending on the arrangements a substantial possibility that the central government is bust as well 100% debt and hardly tax income.

2. It is the people deciding that is the complicating factor. If Catalunya works for instance. The rest will have the script. And in Italy it is something like every month 100 Euro for everybody going South (that is alot of money and a good incentive). The government will not start it. Of course not it would be completely bust if the North started for itself.

3. Europe is going to a lost decade (or two). For the EZ the South will be a very expensive appendix and so are eg the South of Italy for the properly working North. With no growth and rising welfare (esp aging) cost it will be a hard battle who has to pay for it? Same on local level for permanently unemployed and non-western immigrants.
The way Europe is organised mass costs can only be carried by the large middle groups. The top and business simply moves to another country the lower classes donot have anything. 2 Choices cut entitlement or reduce middleclass income by way of higher taxation no other options. That will be a hard battle. Outcome unsure. My guess short term most will go mainly for higher taxes and longer term as this will not appear to be sustainable cuts and massive ones as you need probably in most countries 15-20% cuts to finance aging and get a sustainable sytem again. Interesting times.

Denis Cooper said...

As the EU Commission admitted on Monday, it has no clear idea what would be done if it was decided that part of a member state would break away:

http://euobserver.com/political/117867

"Commission ducks questions on separatism in EU states"

"Rolling back on previously more definite statements about new states being obliged to apply for EU membership, the commission on Monday (15 October) said it would express an opinion only if asked by a member state and only if it concerned a specific situation.


"Concerning certain scenarios, such as the separation of one part of a member state or the creation of a new state, these would not be neutral as regards the EU treaties," said a spokesperson."


"But as the question of a new breakaway state asking for membership has moved from the pages of academic journals to something closer to reality, EU officials - lacking guidance from the EU treaty - have moved to wait-and-see mode."

"The new-found reticence reflects the complexities generally and for each region, including whether Scotland would have to join the single currency and whether Belgium would actually exist as a state without Flanders, something De Wever says would not be the case."

One thing should be clear to anyone who isn't an English village idiot: if Scotland became independent, then England and the rest of the UK could not just carry on in the EU on the terms presently agreed for the United Kingdom of Great Britain and Northern Ireland, as when the treaties were made "Great Britain" was taken to include Scotland and that political entity "Great Britain" would no longer exist.

I'm English, by the way, so if some of my fellow Englishmen display ignorance and stupidity then I'm allowed to mock them like that.

Rik said...

@Denis Cooper
Just my 2 cts.

The EU is an organisation/treaty between 27 countries/parties. This most likely will give the explanation on questions like that.

-Catalunya becoming independent. Means that Spain will remain Spain under international public law. And Spain is and will be the party to the EU treaty.
Catalunya will be a new member and has to apply for it. With Spain having the possibility of a veto.
-Belgium. Depends how it is constructed. Most likely Flanders moves away. If so basically see Catalunya. If it falls apart Belgium stops to exist and there are 2,3,4 new countries that would have to apply. Basically with all formalities attached to that but the treaty will likley have to be adjusted anyway probably that will include an easy non-entry.
With Belgium of course with the exta problem of 'Brussels'.
-Scotland similar to Catalunya.

However things like seats in EP should likely be adjusted (especially for Spain and Belgium, the UK likely remains a big country).

In practice a lot of negotiations first will have to take place to make it work. Spain is acting rather agressive now. But at the end of the day. If Catalunya runs away Spain will legally be holding all the national debt. The people that remain Spaniards in Catalunya would need a residence permit/visa and a workpermit and as outside the EU they could be kept outside social security as well. Basically only these 2 would mean Spain getting more than 100% debt and another 1 million or so unemployed (combined making it worse than Greece). Just 2 examples why it will have to be properly negotiated before things happen in order to avoid a big mess. Crazy officers are the least of the worries.
Basically it is by far the best if the new EU membership will start at the same day as the country. But that can only by negotiation.

Same with Euro exit or UK reneg. There are official rules for that. But if all parties would use their rights nothing can happen. Effectively the UK could block a Greek Euro-exit (combined with staying in the EU) (and a banking union and transfer of powers to Brussels on any issue also only in the EZ). Combined with the problem that some 'Euro-rules' are EU rules, meaning that EZ countries alone cannot change them and if they make 17 country rules opposing EU law, the latter always goes first.
A lot of talk by the garlic brigade about a 17 country treaty it will not work legally, simple as that.
Effectively all can block all if things get unpleasant. Only solution is sit around the table and reneg.

Another point if say spain would use force it probably will have to be suspended from the EU (with all sort of problems re running programms and votingrights. Anyway probably the EU would fall apart if that happened and it was allowed by Brussels as it is completely unsellable in all of the core nations.

Rollo said...

It is the EU's aim to make the continent a super-state of Regions and Cities, ruled by Brussels. Divide and rule is the plan. The myth is there would be 'Independence' for Scotland or Catalonia in the EU. They would simply become weak vassal parishes in the EU, like Malta or Cyprus, with no power to change anything. If they want independence, they will have to take it by getting OUT OF THE EU.

Des McConaghy said...

Italian unification confirmed the subservient fate of Southern Italy, Spain's constitution envisaged the gradual leveling of regional economies but this never happened, Germany evolved a successful system of inter-regional equalization but that system did not survive German unification - and the post war Berlin regional economy was always a nut case. Half of Scotland's spending still has nothing to do with the Scottish Parliament, and so on. Few of the leading EU Member States have a successful system of regional finance - and neither has the EU! Period!!

Des McConaghy said...

Oi!

my earlier comment somewhat cryptic!!

let me re-draft please!