Independence and Dependence: Two sides of the same coin

Instead of breaking the deadlock, the recently held elections in Catalonia only deepened existing fault lines in Catalan politics. As the Spanish government maintains direct control of the Catalan administration, and keeps several Catalan politicians and activists imprisoned, the whole of Spain is still holding its breath. Only the EU and its member states are now in a position to defuse the mounting tension between Catalan secessionists and Madrid. But what would be a desirable outcome to push for in the long run? To understand what the economic theory of fiscal federalism would prescribe, let us reduce this rather complex question to more tractable proportions.
 
Imagine, as an analogy for the European Union, a coastal community of 27 villages. Each of these villages lies behind the dunes but slightly below sea level, and is easily flooded when the weather gets rough. One village in particular is submerged almost every year. After several floods the families of this village decide to work together, committing to the construction of a levee to hold back the next surge. Cooperation runs far from smoothly however, as each family expects the other families to contribute just enough time or resources to properly build and maintain the levee, which makes own contributions seem unnecessary. This is a textbook example of ‘coordination failure’, where not a single family contributes as much as it should, so that the levee is regularly breached.
 
The village then turns to its mayor, who was already in charge of security and is elected by simple majority. She is asked to fully coordinate the construction and upkeep of the levee – raising taxes to pay for workers – to ensure it can weather the next storm. But what she did not anticipate unfortunately, was climate change. Gradually intensifying storms eventually breach her sturdier levee as well, and along with rising sea levels this now puts the entire coastal community underwater. All 27 mayors subsequently throw their weight behind an even larger levee, and set up a special council in which they negotiate construction and maintenance. Yet this cooperation runs into trouble as well, since now every village is expecting the other villages to put in enough effort. Again, and lacking a single coordinator, poor construction planning and maintenance causes the levee to break at frequent intervals. Only this time the entire coastal community is affected.
 
In its current form, the EU shares much of these dynamics. Members of the European Council behave much like the council of mayors in our analogy, promising to cooperate, but often dragging their feet. Solutions to complex issues affecting every European are imperfect as a result. From well-balanced migration policies to external border protection, effective intelligence services, harmonised corporate taxes or cross-continental energy infrastructure, coordination often fails. In other areas however, member states did manage to put in place workable projects. Think of EU trade policy preventing costly trade wars, or the single market. The European levee sometimes holds in other words, but sometimes breaks.
 
To explain Catalonia’s role in all of this, our coastal analogy is particularly helpful. Suppose a relatively rich family – embodying the Catalan case – strongly disagrees with local building regulations. Since its mayor – which would be the Spanish government – has refused to bend these rules for years, the dissatisfied family chooses to go it alone. It decides to pay for its own security, and to renovate the family farm as it pleases. In return for representation in the council of mayors moreover, it still commits to the construction and upkeep of the levee – which reflects the secessionists’ wish for Catalonia to remain part of the EU. But is our seceding family better off in such a best-case scenario? Self-financing security turned out to be harder than expected: housing and equipping security guards was cheaper at the level of the village. The right to renovate the farm compensated this welfare loss somewhat, as was often stressed by the head of the family as well before seceding. What the family members were not told however, proved a bit more essential: their beautifully renovated farm was soon to be turned into an underwater home. 
 
What had happened? Negotiations in the council went poorly as the newly admitted family head often quarrelled with his former mayor. The richer household had not been the only dissatisfied family moreover. Three relatively richer families soon seceded as well, leaving the rest of the village even less secure, and less willing to contribute to the upkeep of the levee. In addition, every other village proved to count one or two dissatisfied families, which also seceded. This quickly swelled the ranks of the council, turning levee negotiations in a head-to-head contest rather than a compromise-seeking process. On top of that, more and more families had begun to move to the safer villages, which grew increasingly overpopulated and unwilling to contribute as a result. In the end, the already imperfect upkeep of the levee was given up entirely, and overall welfare became fully weather-dependent.
 
If all of this sounds a bit extreme, picture the real-world equivalent where an independent Catalonia is given full EU membership and a seat at the table. Basque country, Navarra and Galicia may want to secede as well under such favourable terms, putting ever more pressure on Spanish public provision, as well as on the willingness of the Spanish rump state to properly function within an EU framework. If nothing stops Flanders, Veneto, Corsica, Lombardy and others from jumping ship furthermore, we would end up with a EU Council of about 40 heads of state, each more or less at each other’s throat. Add to that an even messier migration crisis after workers and companies decide to relocate from the rump states to the more stable or affluent member states – possibly encouraged by intensifying tax competition – and EU partnership may just grind to a halt, or collapse altogether.
 
But what if the mayors in our analogy had urged the stubborn mayor to simply 'decentralise' the building regulations? What if they had allowed the entire coastal population to elect one single coordinator in charge of the levee? The whole community would have prospered. Similarly, and back in the real world, it should be clear where the responsibility of European politicians lies. If they value Catalan welfare, they should press the Spanish government to set up a fully-fledged federal structure, allowing for more regional autonomy. If they value European welfare, they should work towards installing a joint political space within which a democratically elected European government can tackle the complex challenges of the 21st century. 
 
Willem Sas is a lecturer at the University of Stirling and a research fellow at the KU Leuven. A different version of this text appeared in ‘De Tijd’ on October 12.
 

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post by Willem Sas
University of Stirling
8th January 2018
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