Speaker 1: How do you create a state from scratch? Secession can
Speaker 1: feel pretty good, and every nation needs to have a
Speaker 1: sense of itself, its identity and where it comes from.
Speaker 1: But that doesn't make a state. Currency needs to be
Speaker 1: issued and printed. Revenue needs to be collected, Bills need
Speaker 1: to be paid, Armies need to be raised at a
Speaker 1: more mundane level, Trash needs to be collected. How does
Speaker 1: all this stuff get done and how many breakaway movements
Speaker 1: actually give it much thought. Catalonia, a region of Spain
Speaker 1: that's seeking to go its own way, is a good
Speaker 1: case study. Welcome to Benchmark, a show about the global economy.
Speaker 1: I'm Daniel Moss from Bloomberg View in New York, and
Speaker 1: I'm Scott landman and economics editor with Bloomberg in Washington.
Speaker 1: The plumbing of a potential news state, how the machinery
Speaker 1: of government would actually work might seem pretty mundane in
Speaker 1: the midst of a heady nationalist campaign, but it's the
Speaker 1: stuff that determines whether a country succeeds or fails. Joining
Speaker 1: us is Maria today O, a Bloomberg News reporter who
Speaker 1: has been covering the Catalan independence scene. And Max seems Spy,
Speaker 1: an economist for Bloomberg Intelligence in London. Let's bring in
Speaker 1: Maria first, where she is on the scene in Barcelona. Maria,
Speaker 1: there's been a lot of developments on this story lately,
Speaker 1: but if you can just take a step back and
Speaker 1: sit and and tell us a little bit about why
Speaker 1: the Catalans, or why Catalonia wants to declare independence, or
Speaker 1: why they're moving in this direction or they have been
Speaker 1: moving in this direction for several years. A lot of
Speaker 1: people would tell you to have to do with identity,
Speaker 1: how to do with the fact that they have their
Speaker 1: own language, their own history, and the fact that it's
Speaker 1: always been a very distinct region within Spain to this
Speaker 1: ghost center is back, So a lot of people would
Speaker 1: tell you that's where it starts. Having said that, you'd
Speaker 1: also get an argument that, you know, there's kind of
Speaker 1: started in two thousand six when they were meant to
Speaker 1: have new regional powers and a new regional kind of
Speaker 1: framework for the way regional powers are inactive in Spain,
Speaker 1: and then uh that prompted a backlash from Madrid who said, look,
Speaker 1: they're going too far. They're kind of presented themselves as
Speaker 1: a nation and we have to water down to the bill, right,
Speaker 1: So a lot of people will tell you that's when
Speaker 1: it started, and obviously the real frustration kicked out in
Speaker 1: two thousand and twelve, when obviously the crisis in Spain
Speaker 1: really began to fight, and it began to fight hard
Speaker 1: and the Catalan administration's pockets. Now, they would tell you
Speaker 1: this is unfair for us because we pay a lot
Speaker 1: of taxes to Madrid, which then get distributed to the
Speaker 1: rest of Spain, but we don't get a fair deal
Speaker 1: because we're putting way too much money in Then we
Speaker 1: get back in terms of infratchurch to expending and more
Speaker 1: investment in the region. So a lot of people tell
Speaker 1: you have to do with history, but also the fact
Speaker 1: that there's been a series of maybe political issues lately,
Speaker 1: and obviously the fact that there was a crisism. This
Speaker 1: is a man it's very essence question about money. Now,
Speaker 1: there are many parts of individual countries that have unique culture,
Speaker 1: unique language, unique way of looking at the world. That
Speaker 1: alone doesn't give you the building block of a state.
Speaker 1: You can see yourself as a nation, but you also
Speaker 1: need to have a state. How much thought has gone
Speaker 1: into what the state would look like and how it
Speaker 1: would work. That's a great question. And in fact, you
Speaker 1: can look at Spain and see other regions that also
Speaker 1: have their own language, that also have their own history,
Speaker 1: and that you know, have had a very strong regional
Speaker 1: identity for century. So obviously within Spain, Catalonia is not
Speaker 1: an exception. You can say there's other regions that also
Speaker 1: are the same case would apply. Now the question is
Speaker 1: how do you become a state and most brutantly, who
Speaker 1: is getting to recognize your state? Well, so far Catalonia,
Speaker 1: you know, there's basic infrastructure and basic structures that they
Speaker 1: lack and they've admitted to this, like having their own
Speaker 1: tax agency. The money the taxes are collected to the
Speaker 1: central government's tax agency, so again that's something that Madrid
Speaker 1: has powers over. Then you know, if you look at
Speaker 1: things like territorial and border control, that's something that Madrid
Speaker 1: has control over. So again it's a question of do
Speaker 1: you have the fundamental infrastructure that you need. The Catalan
Speaker 1: government will tell you we do. However, they've never been
Speaker 1: tested or friend to the test, so there are question
Speaker 1: marks to whether they would ever work. So I, as
Speaker 1: an Australian and an American, if I wish to travel
Speaker 1: to the country to the state of Catalonia. Do I
Speaker 1: need a visa? What currency should I take with me?
Speaker 1: What's the banking system like? Do they have any relationships
Speaker 1: with banks here in the United States? Has anyone thought
Speaker 1: about this? Yeah, that is a good point, and essentially
Speaker 1: what the Catalan government will tell you. It's like, there's
Speaker 1: no way we're going to get kicked out of the
Speaker 1: European Union. We're going to get to give the euro
Speaker 1: and you won't need a password to get in and
Speaker 1: out of California because we would be a European country.
Speaker 1: Now the point that here is no one from the
Speaker 1: European Commission, which is you know with obviously exercises power,
Speaker 1: has come out and said this would be the case.
Speaker 1: In fact, we're a getting the opposite, the commissioners saying,
Speaker 1: look as a dance the law that prevails in the
Speaker 1: Spanish Constitutional Court and and we don't think this is
Speaker 1: a valid rerough erendum. Again, this all goes back to
Speaker 1: the very basics of it, is this a legal vote?
Speaker 1: And as do they have legal mandate? So far we
Speaker 1: don't think that's the case because no one has recognized this,
Speaker 1: and have they put tho into this. Yes, But again,
Speaker 1: what you hear from the Catalan administration is that they
Speaker 1: think life would go on as normal as they're guarantee
Speaker 1: that that would be the case at this point, not really.
Speaker 1: If Catalonia were actually to become independent from Spain, given
Speaker 1: catalonious role in the Spanish economy, like you were just
Speaker 1: talking about, you know, it's basically a more prosperous area
Speaker 1: than the rest of the country, would it be pretty
Speaker 1: devastating for the economy of the rest of Spain. Yeah,
Speaker 1: I would obviously have an impact on the Spanish economy
Speaker 1: and sent there's no no one can deny that business,
Speaker 1: the powerhouse economy, their rivals Madrid essentially and the bad
Speaker 1: country too, And obviously it would have an impact on
Speaker 1: the broader nation, there's no question. But again the question
Speaker 1: markets what could happen to an endependent Catalonia. You need
Speaker 1: to keep in mind that a lot of the businesses
Speaker 1: that you know are based in Catalonia actually do a
Speaker 1: lot more business with the rest of saying that they
Speaker 1: do with you know, inside Catalonia. And also this opens
Speaker 1: up a broader question, which is, well, they get to
Speaker 1: keep the same trade relationship with the European Union if
Speaker 1: they were to separate and that is obviously a much
Speaker 1: bigger question. Now you can live without Spain, but without
Speaker 1: access to the European market, that's a much broader issues,
Speaker 1: right because Catalonia would be a separate country. Therefore it
Speaker 1: would have to go through EU entry procedure is and
Speaker 1: until that time it would not be in the EU,
Speaker 1: which means they can't use the Euro, which means they
Speaker 1: don't have a trade relationship in the Single Market, which
Speaker 1: means they have to use the w t O, which
Speaker 1: means they'd be subject to tariffs. What will they call
Speaker 1: their currency? Who will run their central bank? I just
Speaker 1: get the impression no one's really thought with any intellectual
Speaker 1: rigor about this. Well, that's a good point, and again
Speaker 1: it's a it's a question that you're never actually able
Speaker 1: to get a clear answer from the Catalan administration because
Speaker 1: they insist that there's going to be no need to
Speaker 1: return back to an old currency. Again, if you remember
Speaker 1: before the europe Catalonia has a Spanish perseta. So the
Speaker 1: question is would you go back to an old Spanish
Speaker 1: currency or would you create your own? And the factor
Speaker 1: is in the Canal administration doesn't really have answers to
Speaker 1: these questions because they always insist we're not going to
Speaker 1: get get out and we're not going to be forced
Speaker 1: out of the years, and so we're going to get
Speaker 1: to keep the euro. Obviously, when you look at the
Speaker 1: market reaction and businesses here, they think the answer may
Speaker 1: not be as clear cut, which is why we got
Speaker 1: more than twenty companies leaving the region since the referendum
Speaker 1: take place, and why two of the region's biggest banks,
Speaker 1: Cash A Bank and Sava Day decided to move their headquarters,
Speaker 1: like if they wanted to send a strong message to
Speaker 1: the market that no matter what happens, we're going to
Speaker 1: be a US and bank backed up by the European
Speaker 1: central banks. Precisely because we don't have a concrete answer
Speaker 1: on this, and what would happen if you're trying to
Speaker 1: have this conversation with the people in the square waving
Speaker 1: the flags, carrying the candles, what's a central bank, what's
Speaker 1: the currency, what's a tax? Exactly? This is this is
Speaker 1: a very emotional uh topic of conversation here in Catalonia.
Speaker 1: There are people who would say, look, we have obviously
Speaker 1: it's not going to be easy, but we think we
Speaker 1: can get it done. And again go back to the
Speaker 1: point that we're not going to get it out from
Speaker 1: the European Union. Some other people just don't question it.
Speaker 1: They think, look, it's it's it's not going to be fine.
Speaker 1: And actually, if we did have to play a price,
Speaker 1: it might be worth it. You know, we're going to
Speaker 1: be an independent nation and this is what we want.
Speaker 1: It might mean the yet times again if you're rough,
Speaker 1: but actually it's worth it in the end. There are
Speaker 1: some others today, especially the business community doesn't certaintly. We
Speaker 1: don't like it. There's lack of clarity, we don't like it.
Speaker 1: And again the business community reached out to the cattle
Speaker 1: Original president Carlos such A mornents that we need to
Speaker 1: find a middle way to get uh, you know, an
Speaker 1: altitude this issue and the cattle in issue, because again
Speaker 1: for the business community, it's really not clear cut. The
Speaker 1: business would go on as usual. Maria. It's an interesting
Speaker 1: story with many more dimensions than we can even cover
Speaker 1: on day to day basis. Thank you so much for
Speaker 1: taking the time to talk with us. I'm not to
Speaker 1: worry any time. Let's go now to maxim As Bohy.
Speaker 1: He's an economist with Bloomberg Intelligence in London. Maxine, thanks
Speaker 1: for joining us today. Thank you for inviting me. I
Speaker 1: read a piece that you and your colleagues at BI
Speaker 1: wrote recently and pretty down bet on how Catalonia would
Speaker 1: function or the challenges that they would face as an
Speaker 1: independent nation. You I was really struck by a line
Speaker 1: that you said that Catalonia could find itself combining trade
Speaker 1: arrangements worse than those of post Brexit Britain, with a
Speaker 1: monetary system more like Kosovos. That doesn't sound too good.
Speaker 1: Can you tell me a little bit more? It sounds
Speaker 1: a bit scary, yes, indeed. Um, So in this piece,
Speaker 1: what we did is actually trying to see what an
Speaker 1: independent Catalonia would look like economically. So our central scenario
Speaker 1: is that Catalonia won't declare independence, or as soon as
Speaker 1: they really do, the Spanish governments in Madrid is going
Speaker 1: to say his power by triggering Article on the fifty
Speaker 1: five of the Spanish Constitution. But in this piece, what
Speaker 1: we wanted to see is if Catalonia wins independence, how
Speaker 1: is it going to look like on an economic angle?
Speaker 1: And since they would probably exit the Eurozone, the European
Speaker 1: Union and they have no World Trade Organization membership, they
Speaker 1: would from day one, end up having no regulation, having
Speaker 1: no possibility teas of actually doing trade with the rest
Speaker 1: of the world. They would lose all the membership cards
Speaker 1: that Spain enjoys, and this would amount to being like
Speaker 1: in a situation like cost of all because of is
Speaker 1: using the Euro as a currency, but it's absolutely no
Speaker 1: influence on the monetary policy of the Eurozone. And at
Speaker 1: the same time, Brexit would actually be quite similar in
Speaker 1: a sense that all these trade agreements would from the
Speaker 1: one just disappear and you would end up having to
Speaker 1: go to the World Trade rules. But again Catalunia doesn't
Speaker 1: belong to the World Trade Organization, so even that would
Speaker 1: be not available for them, Unlike Brexit. The United Kingdom
Speaker 1: of Great Britain and Northern Ireland is a country that exists.
Speaker 1: It's a member of the u N, it's a member
Speaker 1: of the i m F, it's a member of the
Speaker 1: World Bank. It's a thing exactly. There is no country Catalonia.
Speaker 1: So they're much worse. If they go their own way
Speaker 1: then the UK is now that's truth. They would they
Speaker 1: would have basically no international statues. There's a lot of
Speaker 1: state that. I mean, if you look at Kosovo, for
Speaker 1: example that happened two thousand and eight in the still
Speaker 1: the vast majority of states don't recognize Kosovo Catalunia. It
Speaker 1: would be it would be probably the same thing. They
Speaker 1: would have to go through a very long process if
Speaker 1: they if they would like to re enter the European Union,
Speaker 1: if they would like to re enter the euro Zone,
Speaker 1: you lose access from one day to the other, but
Speaker 1: then it takes years, I mean really years. Bulgaria, for example,
Speaker 1: has been waiting since two thousand seven to enter the
Speaker 1: euro Zone. So it's a very long process that you
Speaker 1: would have to go through. As soon as you declare
Speaker 1: independence from Spain. Have the people in California, or at
Speaker 1: least the leaders that are sort of pushing the independence movement,
Speaker 1: do they have this infrastructure set up already for the
Speaker 1: state ready to go if they declare independence or are
Speaker 1: they basically starting from scratch if if they were actually
Speaker 1: to become independent from Spain. So that's that's a good question.
Speaker 1: I think I think we should ask them the question. Obviously,
Speaker 1: I don't think that the state is fully prepared to
Speaker 1: do that, and I don't think that the citizens, when
Speaker 1: they voted in this very controversial referendum that the citizens
Speaker 1: exactly know what was at stake here. Declaring independence is
Speaker 1: one thing, but then telling the citizens if we do that,
Speaker 1: you will lose maybe your currency, you will lose, all
Speaker 1: the trade agreements, you might lose also obviously the all
Speaker 1: the travel freedom in Europe. I think there's much more
Speaker 1: at stake than what was on the ballot. And this
Speaker 1: is also why it's very controversial in Catalonia this referendum.
Speaker 1: The fact that only participated and the fact that there's
Speaker 1: a minority maybe or fifty fifty of the population that
Speaker 1: doesn't want independence. Right now, that's a revelation. The impression
Speaker 1: one gets from watching international TV channels, reading international newspapers
Speaker 1: is that this is a slam dunk as far as
Speaker 1: people in Cattle Larnier are concerned. You're saying only a
Speaker 1: minority five or breaking away. Well, if you look at
Speaker 1: the result of the referenum, so the referenum was illegal.
Speaker 1: So you have ninety percent or ninety percent saying they
Speaker 1: wanted independence, but only full percent voted during that referendum.
Speaker 1: So if you add up the figures, it's a minority.
Speaker 1: That doesn't mean that if more people had voted that
Speaker 1: the result would be different. But they're coming independent on
Speaker 1: such a small illegal, not legitimate, I would say, basis
Speaker 1: is questionable obviously, and we've seen some protests actually two
Speaker 1: weeks ago of the anti independence movements and there were
Speaker 1: i would say hundreds of thousands of people in the
Speaker 1: streets on Sunday for people just with the Spanish black
Speaker 1: saying we don't want to have independence. One must keep
Speaker 1: in mind that the regions in Spain already enjoy some autonomy.
Speaker 1: Catalonia as his own government, his own police, It has
Speaker 1: his own taxes, also national ones, but obviously more regional ones,
Speaker 1: so it or it is already enjoying some kind of autonomy.
Speaker 1: Obviously not enough for the people that want to push
Speaker 1: for independence. For example, they think they are giving too
Speaker 1: much money to the central state. There are net contributors
Speaker 1: to the national budget. But the bottom line here is that, yes,
Speaker 1: there are a lot of people in Catalonia that don't
Speaker 1: want to have independence. And this is why I think
Speaker 1: the best way to solve this problem would be to
Speaker 1: have a real vote, an actual vote in the good conditions,
Speaker 1: but this is very unlikely to happen anytime soon. Here's
Speaker 1: the bottom line for what Dan raised in our intro.
Speaker 1: Will the trash continue to be collected in Catalonia? Isn't
Speaker 1: at all that really matters in the end? Well, at
Speaker 1: the end of disruption in Catalan's daily life. If they
Speaker 1: really go to independence, if they lose all these trade
Speaker 1: agreements and all this uh multilateral agreements they're enjoying, the
Speaker 1: effect could be quite significant on the daily life of
Speaker 1: the cataman citizens, in terms of jobs, in terms of inflation,
Speaker 1: in terms of being able to collect money to go
Speaker 1: to the A T M and have Europe. So I mean,
Speaker 1: at the end of the day, Yeah, the question is
Speaker 1: is pretty much about the quality of life, and but
Speaker 1: what's the future they want in the region. Has anybody
Speaker 1: asked the leaders of the independence movement what their plans
Speaker 1: are for monetary arrangements, budgetary arrangements, revenue raising, bordering customs.
Speaker 1: Has anybody actually asked them that demanded that they explain. Well,
Speaker 1: there has not been a real campaign ahead of the votes,
Speaker 1: and I haven't seen anything where they really explained what
Speaker 1: they want. I've seen some declarations of some supporters of
Speaker 1: the catal and President Pride demon saying that they could
Speaker 1: resort to capital controls or to some form of economic
Speaker 1: quercation to make sure that the capital flows don't don't
Speaker 1: leave Catalunia. Um the question, obviously, I mean to me
Speaker 1: the business. Some banks, for example, have already left, right
Speaker 1: they moved their headquarters away from Barcelona and they put
Speaker 1: them in the valley Arres or in Madrid. So they
Speaker 1: already preventively made a move to make sure that they
Speaker 1: don't get disrupted in the business. But I think, yeah,
Speaker 1: the question for the Catalan government is are you ready
Speaker 1: to go all the way down this path and are
Speaker 1: you ready to assume the responsibility towards your citizens. I
Speaker 1: think this is the very central question here, Maxim before
Speaker 1: you go a thirty question, what makes Catalonia so special?
Speaker 1: I mean, why doesn't Bavaria want to break away? Why
Speaker 1: not Brooklyn secession? What's so great about the Catalonians? So Actually,
Speaker 1: the funny stories that Bavaria is actually a party that
Speaker 1: also advocates independence, but they only have a few votes
Speaker 1: right there. They're not big at all at the national
Speaker 1: stage or even at the regional state. Catalunia is from
Speaker 1: the history of Spain, from the Franco Hera, from the
Speaker 1: Civil War. It has in an identity, a cultural identity
Speaker 1: that is probably stronger than other regions in Europe. It
Speaker 1: is also of the Spanish GDP, and as I said,
Speaker 1: it's a net contributor to the national budgets. So there's
Speaker 1: a lot of for the for the independence is there's
Speaker 1: a lot of arguments if you line them up like
Speaker 1: this of saying we could actually do well just by
Speaker 1: ourself without the Spanish states and the Spanish authority. Again,
Speaker 1: this idea might be at first sight an interesting one,
Speaker 1: but if you go reading on the technicalities of this,
Speaker 1: if you would go all the way down that pass,
Speaker 1: you would lose, I think more than you would win
Speaker 1: by declaring independence. We'll have you back when Brooklyn declares independence.
Speaker 1: That's a yeah, Maxim. It was a pleasure having you on.
Speaker 1: Thank you so much for taking the time my pleasure.
Speaker 1: Thank you very much. Dan. What do you think of
Speaker 1: all this? To this answer your questions about whether anybody's
Speaker 1: thought of the real issues that have to be taken
Speaker 1: care of if a country actually becomes independent, I'm left
Speaker 1: with the impression that few people have contemplated, or at
Speaker 1: least articulated, what the machinery of night in an independent
Speaker 1: Catalonia would look like. It's all very well to wave
Speaker 1: a flag in a square and hauld a candle at midnight,
Speaker 1: But how does the business of government get done? It's
Speaker 1: not glamorous, but it strukes me that it's pretty essential.
Speaker 1: What you're saying seems like it could be applied to
Speaker 1: a lot of countries in the world today. On the
Speaker 1: other hand, this is how things happen in the world,
Speaker 1: how revolutions, how all these kinds of issues that we cover,
Speaker 1: you know, actually get done. It comes down to how
Speaker 1: people feel and then the actual machinery of government follows later.
Speaker 1: Benchmark will be back next week and until then, you
Speaker 1: can find us on the Bloomberg terminal, Bloomberg dot Com,
Speaker 1: our Bloomberg app, as well as on Apple Podcasts, pocketcasts,
Speaker 1: and Stitcher. While you're there, take a minute to rate
Speaker 1: and review the show. Some more listeners can find us
Speaker 1: and let us know what you thought of the show.
Speaker 1: You can follow me on Twitter at Scott Lanman Dan
Speaker 1: you are at moss under School, Eco, Maria is at
Speaker 1: at m A R I A T A D, and
Speaker 1: Maxim is at at m x s b A. Benchmark
Speaker 1: is produced by Sarah Patterson. The head of Bloomberg Podcast
Speaker 1: is Francesca Levy, thanks for listening, see your next time.