Is Secession the Answer? The Case of Catalonia, Flanders and Scotland

Scotland

In Scotland, residents will vote next September on whether their homeland should become an independent country or remain part of the United Kingdom. In Catalonia, Spain, provincial president Artur Mas has called for a referendum on whether Catalonia should become a sovereign state. And in the Belgian province of Flanders, the leader of the ruling party has called for negotiations that would “enable both Flanders and French-speaking Wallonia to look after their own affairs.”

Although the economic integration of Western Europe has proceeded at a rapid pace in recent decades, the political borders of the region have remained almost entirely unchanged since the end of World War II. And yet, “there is the real possibility of one or several national divorces being initiated in Western Europe in 2014,” notes Nicholas Siegel, senior program officer at the Transatlantic Academy, a U.S.-European think-tank based in Washington, D.C.

The urge to secede raises several questions: Could separatist movements in three of Europe’s most historic regions — Flanders, Catalonia and Scotland — actually lead these provinces down the path to political independence? If so, what would be the impact on the economies of these regions, and on Europe as a whole? And would these three regions be more — or less — likely to thrive if they attained sovereignty?

The Roots of Regionalism

Why are these regional movements gaining strength? Wharton management professor Mauro Guillen, who is also director of Wharton’s Lauder Institute, notes that despite some contrasts, the three regions have important things in common.

“All of these regions have a distinctive language” — the Catalan tongue, spoken in Spain’s northeastern province of Catalonia; Flemish, a distinctive dialect of Dutch; and the Scottish dialects of English, spoken especially in the Highlands — along with a sense of cultural uniqueness, he notes. Second, two of the three economies — Flanders and Catalonia — have achieved a higher level of industrialization than other regions in their respective nation-states. Scotland, meanwhile, takes great pride in its historic role as the birthplace of such innovations as the steam engine, gas lighting and rubber tires. Third, each region has already been granted considerable autonomy to administer its own affairs, Guillen says, making it easier for many to imagine a transition to total independence.

The failure of national governments — as well as the European Union — to restore pre-crisis prosperity means that “many people are pissed off at their national governments.”  –Jacob Funk Kierkegaard

But it has been centuries since any of the three regions has been a sovereign state. The Kingdom of Scotland opted to join the Kingdom of England in 1707, and the administration of Catalonia was centralized under the government of Madrid after the War of Spanish Succession in 1714. It wasn’t until 1830 that an independent Kingdom of Belgium emerged from the secession of the southern provinces of the United Kingdom of the Netherlands. By then, the Dutch-speaking — but largely Roman Catholic — province of Flanders had forged a distinctive identity in such commercial and cultural centers as Bruges, Ghent and Antwerp.

It may seem paradoxical in an age of global communications, but the revival of regionalism “is a global phenomenon,” notes Jacob Funk Kierkegaard, a senior fellow at the Peterson Institute for International Economics, a Washington, D.C. think tank. Today’s high-speed technologies, including the Internet, “enable people to start a campaign and get out their message” quickly and repeatedly to like-minded people who might have harbored such desires in private.

Siegel adds that this spike in regional independence movements is “a micro-version of the breakdown in EU solidarity” sparked by the financial crisis. These tensions parallel the conflict between citizens and government officials of wealthier EU nations — such as Germany, who feel they are being asked to pay an unfairly large share of the economic burden during the crisis — and the lower-income nations, such as Greece.

According to Kierkegaard, the failure of national governments — as well as the European Union — to restore pre-crisis prosperity means that “many people are pissed off at their national governments.” Especially in Flanders and Catalonia, “many people want to cut off [their province] from the less affluent parts of their own country,” he notes. Such emotional ties were largely suppressed during the decades when the European economy was growing at a healthy pace. But the lingering economic crisis has accentuated the economic gap between faster-growing regions such as Flanders and Catalonia, and the more lethargic economies of regions such as Wallonia and Andalusia.

Economic Contrasts

The most dramatic example is in Belgium, where the growing gap between Flanders and French-speaking Wallonia has exacerbated political and cultural tensions. The NVA party, which rules Flanders, believes that wealthy Flanders should not be subsidizing poorer Wallonia, whose regional government is alleged to be wasting money. Flemish nationalists feel strongly that their region is not receiving its fair share of the revenues that it contributes to the national economy.

A generation ago, much of Belgium’s industry was concentrated in Wallonia, heartland of the country’s steel and coal sectors, both of which have declined in recent years. By 2012, the per capita GDP of Belgium’s French-speaking Wallonia region was just 26,100 euros, only slightly higher than the average of 25,800 euros in the entire community of 28 EU nations. That compares with Flanders’ per capita GDP of 32,700 euros. Although only 58% of Belgium’s 11 million people are Flemish — compared with 32% in Wallonia and 10% in the region of Brussels — Flanders produced 82% of Belgium’s total exports last year, notes Brussels-based John Verzeele, director of inward investment at Flanders Investment and Trade, an agency of the Flemish regional government. The unemployment rate in Wallonia is 15.2%, but it is only 6.3% in Flanders — and 10.7% in Belgium as a whole.

Flanders’ prosperity has much to do with its transformation into a knowledge-based economy — with strong high-tech and services sectors — that is well-positioned between the neighboring markets of France (to the south), the Netherlands (to the north) and Germany (to the east), experts say. The giant port of Antwerp — Europe’s second-largest — lies only a few miles south of the border with the Netherlands, much closer to the Dutch sphere of cultural influence than to the French-speaking provinces of Belgium. Reflecting the region’s tight integration into the European economy, the superhighways of Flanders are dotted with the state-of-the-art plants and distribution centers of such firms as Nike, Toyota, Genzyme, Volvo and Cargill.

Verzeele notes that Flanders’ organization of employers supports the separatists because the association believes that “independence will lead to better conditions for companies. They believe it will be possible to lower corporate taxes in Flanders — and probably also individual taxes — as a result.” Such views are necessarily shared by multinational companies, he adds, because “foreign companies in Flanders care about stability and certainty.” Many foreign companies that do business in Flanders are also active in Wallonia, as well as in Brussels, the multicultural capital city of Belgium, making it harder for them to forecast the likely impact of full sovereignty.

Ominously for Wallonia, a significant divide has also emerged in the educational performance of students in the two regions. In the latest (2009) Program for International Student Assessment (PISA), measuring 15-year old students’ skills in reading, mathematics and science, Flanders ranked in sixth place among Organisation for Economic Co-operation and Development (OECD) nations, while Wallonia ranked 23rd. “Flanders ranks higher in all of those skills than France, the U.K., the Netherlands and Germany,” Verzeele points out.

But Kierkegaard says that he does not expect Flanders to achieve full independence. More likely, he foresees Belgium devolving into a “hollowed out shell of a federation,” in which all powers — except national defense — are allocated to the regions. A key barrier to such a solution will be the fate of Brussels, the city that is ironically the capital of the European Union but could “be turned into an international territory.”

A Shaky Case for Secession

Like Flanders, Catalonia has been granted a great deal of control over its own affairs, including transportation, commerce, culture and safety. Much like the case in Flanders, the economic crisis has exacerbated local resentment over the fact that Catalonia transfers an estimated 8% to 9% of the region’s GDP to poorer regions of Spain. Among Spanish regions, Catalonia is clearly the leader in global competitiveness: In 2012, Catalonian exports reached a record level of 58.2 billion euros, or 15.38% higher than before the economic crisis began in 2008-2009. In 2012, Catalan exports grew at a rate of 5%, higher than other major eurozone members such as Germany, France, the Netherlands and Finland, according to the Catalonian government’s Institute of Statistics.

Ironically, as Catalonians talk more and more about secession, the region’s economy tilts increasingly toward addressing global markets. In 2012, exports represented 28.1% of the province’s GDP, compared with just 12% in the case of Madrid, 11.3% in Andalusia and 9.1% in the Basque Country. And 57.1% of the entire growth in exports among all Spanish companies came in 2012. A record total of 46,937 Catalan companies were exporters that year, compared with about 34,000 exporting firms before the economic crisis.

“[Scottish nationalism] is not an attempt at anti-English nationalism, but a positive nationalism.” –Nicholas Siegel

Catalonia’s relative success as an exporting region may have convinced many Catalans that the province could go it alone as a sovereign state, say experts, but that success may be sending the wrong message. Catalonia is outperforming the other regions of Spain, notes Kierkegaard, but “it is not a stellar performer. The idea that all Catalonia has to do is sever its ties with Spain, and they become competitive, is a tricky case to make empirically.”

Siegel says that many Catalonians argue that independence would set off a boom, since the province would no longer have to cede portions of its GDP to Spain’s poorer regions. But Kierkegaard adds that “Catalonia is bankrupt,” and its regional debt would have “junk” status if Catalonia didn’t have fiscal guarantees from the Spanish government. Catalonia’s unemployment rate also remains very high, although it declined slightly, from 24.53% in March 2013 to 23.85% by the end of June. During the first quarter, Catalonia’s jobless rate was at its highest level since 1979, and barely lower than that of Spain as a whole.

Back in the U.K., many Scots argue that they would be better off as an independent state because of the region’s access to North Sea oil. Currently, about 90% of all British fossil-fuel extraction takes place in or around Scotland. Alex Salmond, the Scottish First Minister and a leading separatist, once told Scottish voters that North Sea fossil fuels could generate £300,000 of wealth for every person in Scotland.

Despite Salmond’s claim that some £1.5 trillion worth of resources remain under the Scottish seabed, if Scotland votes in favor of secession next year, London would probably dispute that assumption and “the demarcation of territorial waters would be a key disagreement between the two,” reported Stratfor, a U.S.-based global security think tank. North Sea oil production peaked in 1999 and has been declining since. Beginning in 2006, the U.K. has been a net importer of oil, according to the U.K.’s Department of Energy and Climate Change.

Scotland also has a distinctive cultural relationship with the rest of the United Kingdom, notes Siegel. “Language is not an issue” in Scottish nationalism, he points out, and the “Scots were the profiteers of the British Empire,” playing a major role in expanding the United Kingdom across the seas. Scottish nationalism, adds Siegel, “is not an attempt at anti-English nationalism but a positive nationalism. Scotland’s nationalists say they want to keep the [British pound] sterling” but want greater fiscal autonomy.

An International Issue

In the case of Scotland, the government of British Prime Minister David Cameron has granted the Scottish Parliament the right to hold a legal referendum on independence. The fundamental issue, he has said, is not whether Scotland could choose to become independent — but whether it should do so, given the likely consequences. In Cameron’s words, the issue is “whether Scotland is stronger, safer, richer and fairer within our United Kingdom or outside it.”

In Spain, however, Madrid’s refusal to acknowledge Catalonia’s right to hold such a referendum on independence has exacerbated tensions between Madrid and the Catalan government in Barcelona, and strengthened the popularity of the separatists. “The problem now is that many Catalans who in the past never supported outright independence feel themselves caught in a national tug of war,” says Siegel. “Looking to Barcelona, they see a rapidly growing, determined and often uncompromising Catalan nationalist movement, which in blaming Spain for all of the region’s problems and demanding independence, is pushing matters beyond the comfort level of many ordinary people. Yet from Madrid, instead of a comprehensive and welcoming pro-union campaign, they see a rising tide of threats and, at times, nakedly anti-Catalan sentiment.”

“If Catalonia becomes independent, will they [still] be part of the eurozone?” — Jacob Funk Kierkegaard

Kierkegaard notes that in the ongoing dispute, both Catalonian leader Mas and Spanish Prime Minister Mariano Rajoy have reaped political benefits in the short term. “There is an element of political theater here.” The government of Catalonia is “more or less broke,” Kierkegaard adds. Thus, in order to distract public attention from its forced policy of fiscal austerity, Mas “keeps the pot boiling,” generating headlines that cast the central government in Madrid in a negative light. On the other hand, Siegel says that Rajoy is “anything but an inspiring leader,” a politician who doesn’t appreciate the genuine diversity of Spain’s multilingual population.

Beyond its unique constitutional challenges, Catalonia faces another hurdle: The eurozone has a de facto veto over its independence. “If Catalonia becomes independent, will they [still] be part of the eurozone?” Kierkegaard asks, adding that, if Catalonia votes to secede, the EU response could be that “you will have to issue your own currency, and your banks will have no access to the European Central Bank. You won’t automatically have a seat on the ECB governing council.”

There are a lot of other issues that haven’t been thought through, according to Wharton finance professor Franklin Allen. For one thing, Spain without Catalonia “wouldn’t be the same country,” he notes, so it could also become a thorny legal issue to decide whether a Spain that lacks Catalonia should maintain its current status within the European Union.

In the case of Belgium, Brussels is a mostly French-speaking area surrounded by Flemish-speaking Flanders. Asks Allen, “The real question is, ‘What is Belgium?’ Would Brussels be like Washington, D.C.?” As for Scotland, Allen says that the “Scottish case will set precedents” that should prove useful elsewhere. Once the Scottish population gets to vote on an independence referendum, “there will be a path” set toward political sovereignty that could wind up changing the vote on that issue in Spain.

A Regional Brand

Would independence be a boon for Flanders’ economy? Verzeele notes that while Flanders’ economy is “fairly strong, it is still an advantage to be a part of a bigger platform” — that is to say, Belgium. When targeting investors to Flanders, he says, his bureau sells the value of all three components of a Flanders location — Europe, per se; Belgium, and Flanders itself. “We don’t immediately come up with the name of Flanders unless we know that the company is already aware of it.”

Although Belgium’s regions work separately to target foreign investors, most of Belgium’s strongest consumer brands are national — Belgian beers, Belgian chocolates and Belgian waffles, Verzeele points out. (The region’s historic brands — Flemish tapestries and paintings — are the rare, high-priced exceptions.) As hard as it is to brand nation-states in foreign markets, secessionist governments in Flanders and Catalonia would face a major challenge trying to brand their lesser-known European regions in foreign markets. However, Scottish consumer brands are already closely identified with its unique culture, such as Johnnie Walker blended Scotch whisky, Scottish lambswool cardigan sweaters and Highland cheeses.

Verzeele notes that while Flanders’ ruling NVA party favors independence, “a fairly big part of the Flemish population is not in favor of independence, but [simply] wants to give greater responsibility to Flanders.” As some critics have noted, total sovereignty would imply the creation of independent armed forces and other costly initiatives to establish a comprehensive state bureaucracy.

In one arena, at least, there seems to be stronger support of late for the importance of preserving a strong Belgian identity — World Cup Football. The recent success of the Belgian Red Devils in World Cup classifying rounds has helped to dampen some talk about weakening the nation-state — and brand — of Belgium further, Verzeele says. As of October, Belgium ranked fifth in the FIFA/Coca-Cola World Ranking, after only Spain, Germany, Argentina and Colombia.

In this regard, at least, Scottish nationalists are way ahead of their counterparts in Flanders and Catalonia. Scotland already has its own team, as do England, Wales and Northern Ireland. Oddly, there is no “British” or “U.K.” team. However, Scotland ranked in 35th position.

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