“An independent Catalonia should not pay” for Spain’s “odious debts”, says employer association
The President of the employer’s association Cercle Català de Negocis (CCN), Albert Pont, stated that part of the Spanish Government’s debt is “odious” and therefore Catalonia cannot recognise this “illegitimate debt”. However, Pont underlined the “willingness” to pay for the proportionate share of the rest of the debt, which should be calculated “item by item”. In an exclusive interview with the CNA, he denounced a public debt generated “for the benefit of no more than a few companies” that “provide works, services and infrastructures” for the Spanish Government. “If Spain does not recognise the independence of Catalonia, Spain should assume its debt completely and the Catalan Government its own debt”, he warned. In addition, Pont denounced the fact that the Spanish Executive is taking away “between €16 billion and €18 billion” from Catalonia each year, a fiscal deficit amounting to “around 9%” of the Catalan GDP. “The IMF already established that fiscal deficits exceeding 4% of the GDP of a territory amounted to colonial relations”, he highlighted. Besides, he explained that “the average custom duty is between 1.4% and 1.5%”. However, Pont ruled out this possibility since a “political solution” will be reached to keep Catalonia within the EU.
Barcelona (ACN).- The President of the employer’s association Cercle Català de Negocis (CCN), Albert Pont, stated that part of the Spanish Government’s debt is “odious” and therefore an independent Catalonia could not recognise this “illegitimate debt”. However, Pont underlined the “willingness” to pay for the proportionate share of the rest of the debt, which should be calculated “item by item”. In an exclusive interview with the CNA, he denounced a public debt generated “for the benefit of no more than a few companies” that “provide works, services and infrastructures” for the Spanish Government. According to him, this system and the consequent debt is one of the main causes of the current economic crisis in Spain. In addition, the President of the CCN denounced that the Spanish Government is taking away “between €16 billion and €18 billion” from Catalonia each year, a fiscal deficit amounting to “around 9%of the Catalan GDP”. “The IMF already established that fiscal deficits exceeding 4% of the GDP of a territory amounted to colonial relations”, he highlighted. Pont criticised a “perverted” system that is “providing funding to regions that offer public services of better quality than the ones we have” in Catalonia. He recognised the need for solidarity, but he also underlined the necessity to include amount and time limitations. Besides, the Chairman of the CCN, which groups almost 8,000 members and has more than 1,000 full-right members, insisted that an independent Catalonia would have “more business opportunities”. Furthermore, regarding the EU membership debate, Pont insisted that a “political solution” will be reached to keep Catalonia within the EU. He totally ruled out the possibility of being left out but he also said that, under this “impossible” circumstance, “the average custom duty is between 1.4% and 1.5%”, which would not be a problem for the economy. Nonetheless, he insisted that the free circulation of people, goods and capital are not run by a set of treaties which would continue to be applicable.
How do you think the Catalan economy will evolve in 2014?
Currently we can already see some positive trends in the Catalan economy. For instance, the increase in exports, which is above the Spanish average for exports. In addition, since the self-determination process started in September 2012, Catalonia has established itself as the European region that receives the most foreign investments regarding the real economy, outside of Barcelona’s stock exchange. So we can see there are certain trends indicating that Catalonia has entered into the mindset of international investors. Finally, another indicator is tourism: overnight stays as well as the number of days in stays have increased, when in other major cities in Spain, this hasn’t been the case.
This does not mean that in the background, we don’t have a very serious economic situation caused by an increase in public debt and deficit. And this is what we must try to sort out. We believe that a Catalonia, freed from paying off €16 billion or €18 billion in fiscal deficit each year, would be a Catalonia that could reinvest all of this capital in infrastructure, capital, knowledge, etc. And this would be the way to overcome the crisis.
How do you think our economic model should evolve, since the crisis has revealed the limits of our old production model? What should our new production model look like?
It must be said that there isn’t one single economic system that has not suffered from crises, that is immune to crises. But this crisis has a particular characteristic and it is that we have provoked it. It has been a speculative crisis, a real estate crisis, which fundamentally developed out of very specialised markets and economy sectors tied to State oligopolies or to large companies providing works, services and infrastructures for the State; companies that live off State debt. It is a system of communicating vessels that exists between certain items in the Spanish budget and the accounts of certain companies. Therefore, from the CCN, we believe that this public debt has been generated not for the benefit of society but for the benefit of no more than a few companies. This is an odious debt and, in principle, we shouldn’t be deemed responsible for it. Even more so than in the 90s and the first years after 2000, the Catalan institutions have criticised the Spanish Government and its policies regarding investments and infrastructure. They have denounced these colossal macro-works and this cult of immoderation as being unviable and unsustainable. So when you have not taken part in the decision, when the decision has gone against your position, when you have warned time and again against the risks without being taken into account, and this debt has eventually served to benefit a few only, this is an illegitimate debt.
So what we have to do is change this model, return to productive economy, which is what we know all about: an economy of small and medium-sized companies, and especially - the most important thing nowadays - the only way out of the economic crisis for a Catalan company, strictly speaking, is for it to be internationalized. It’s as simple as hiring a commercial director bilingual in French, German or English, that will allow all of us to focus on considerably larger markets. We have the francophone community next door with 75 million inhabitants with an average income that exceeds almost €50,000 per year. And on the other hand, we have Spain, with 40 million inhabitants but with an average income that amounts to less than €25,000 per year. Thus, we see that the product or type of product demanded by one market or the other is very different, the product demanded by Europe is a product of much greater added value and this is where we should go.
When you talk about an ‘odious debt’ and not taking responsibility for it, in a process of independence what would happen to such a debt?
We are precisely analysing how to distribute the assets and debts of the Spanish State [in the event of Catalonia’s independence], and we are probably the ones who have studied this the most thoroughly. And indeed, distribution is necessary. But you should bear in mind that if Spain does not recognise the independence of Catalonia, Spain should assume its debt completely and the Catalan Government its own debt, as long as there hasn’t been an agreement on the issue. And such an agreement could take months or even a year to be reached. In order to know what we are talking about, I’ll give you an example: when Yugoslavia was dismantled, the resulting states had to distribute some €16 billion of debt. When the Soviet Union collapsed – an economic, demographic, military giant – they had to distribute a debt of €53billion. At the current time, the debt of Spain amounts to €980 billion and there still need to be added items that are not included in the concept of debt. In the end, it all adds up to €1,250 billion. This is unsustainable.
What we must show to the international community is that Catalonia has to assume part of this debt, that there is the willingness to assume part of this debt; obviously, a proportionate one. However there are shares of the debt that we are not responsible for. For instance, if the Spanish State gets into debt to build a high-speed rail line between Algeciras, Madrid and Jaca, planning to build a 118-kilometre-long set of tunnels, at 1,500 meters altitude, since this infrastructure will not pass through Catalonia, the debt it will have generated cannot be transferred to Catalonia. We have to be careful with this. When people say that Catalonia will have to assume between 16% and 20% of the €980 billion of debt of the Spanish State, no, it doesn’t work like this. We have to analyse things item by item and see which debt can be transferred, because not all debt can be transferred, and of the debt that can be transferred, what share we should assume. Some of the debt cannot be transferred, for instance the debt of the Spanish State to individual people. For example Treasury Bonds, State Bonds, Treasury Bills, etc. All of these are papers stating ‘Kingdom of Spain’ and those who signed the bonds bought them from the Kingdom of Spain, not the Republic of Catalonia. It is complex but we can define precisely which areas are our responsibility and which ones are Spain’s.
By not acknowledging some items of the debt or the bonds issued by the Kingdom of Spain when Catalonia was part of it, don’t you think this may affect the recognition of an independent Catalan State by the international community, since they might see Catalonia as a state that doesn’t pay for its debts?
It is just that they are not its debts [Catalonia’s]! You’re right but you also have to keep in mind that the doctrine of the odious debt has applied, I would say, to almost all countries in the world including the United Kingdom or the United States in Iraq in 2004... It isn’t that you arbitrarily decide that this debt shouldn’t be yours to pay. The question is how you justify it. That is to say, if you prove that you haven’t made the decision, that you have warned time and again that this was not the way to do things, that they didn’t take this into account, and furthermore that this debt has gone to works, services and infrastructure that are not in your territory, automatically nobody will say “excuse me, this debt is yours”. No, it is not mine to pay. Not that I am running away from it, it is just that I am not responsible for it. It is not mine. You cannot transfer it to me.
This is directly linked to the fiscal deficit and Catalan resources paying for infrastructure in other parts of Spain. Could you explain to a foreign audience what this fiscal deficit is and detail the figures?
What are called fiscal balances are economic instruments used to study the difference between what each region contributes to the State and what each region receives from the State. That is to say, the difference between the taxes paid to the central government by the region and the services received by the region from this same central government. There are some regions which, for historical reasons or other reasons, have an unfavourable economic situation and, on principle, they are prioritised by the State, which transfers to them a series of payments. There are regions that have fiscal surplus, meaning they receive more money than they are providing. In the case of Catalonia, we don’t have any surplus; we only have a fiscal deficit, meaning that Catalonia contributes much more than it receives. What do I mean by much more? The IMF has already established a few years ago that fiscal deficits exceeding 4% of the GDP of a territory amounted to colonial relations. Catalonia’s fiscal deficits are around 9% of its GDP, and talking about the Balearic Islands, their fiscal deficits exceed 14% and even 17% of the GDP. This means three times more than the limit set by the IMF. And all this has consequences.
In principle we are not against the fact there has to be fiscal redistribution between regions and different levels of wealth within the same society. It is OK, such a system has worked well. What happens is that, in the Spanish case, the system has been perverted. It has been perverted for several reasons. First of all, because there are no limits. The IMF set this limit and Spain, on the contrary, hasn’t used it. Secondly, because there are also no limits as to time. For how many years will you have to transfer revenue to other territories? 30 years? 40 years? A lifetime? Always? For ever? There must be a limit here. And finally because the order principle has not been respected. What is the order principle? The order principle states that the richest region has to be the one which brings the most to the Spanish State and, once the solidarity levelling has taken place, it must remain the richest region. This hasn’t applied in Spain because the two richest regions do not contribute and the third and fourth richest ones, once they have contributed and the solidarity levelling has occurred, become ninth and eleventh. With such a thing, what you’re doing is financing the richest Autonomous Communities. What does this mean? That you are providing funding to regions that offer public services of better quality than the ones we have here. It corrupts the whole system and therefore it is not viable as well as being immoral.
Catalonia is the Autonomous Community with the highest debt. Does it mean that the Catalan Government is poorly funded due to the fiscal deficit and therefore accumulates debts? Or does it mean that things could be done better in Catalonia?
It is obvious that things could be done better; they could be done better here and better done in Sweden. But here there is one question to be taken into consideration: without Catalonia’s fiscal deficit, the Catalan Government would have a budget passing from €29 billion to €46 billion. If only a third of this fiscal deficit was funding the Catalan town halls, it would mean that a municipality of 10,000 people with a budget of €10 million a year would have a budget of €22 or €23 million per year. With this, we could do a lot! There must also be control mechanisms to prevent the perversion of the system, but this fiscal deficit is everything. And furthermore, it doesn’t only mean that the Catalan economy is missing €16 billion per year. The problem is that these €16 billion are a money multiplier, meaning that we are not only losing the €16 billion but the whole economy generated by the €16 billion. The value of this is incalculable. We must point out that, in the whole of Europe, Catalonia is the region that has the largest accumulated fiscal deficit. From 1986 till now, it is about to reach €300 billion. This is equivalent to 6 Marshall Plans! The Marshall Plan was 6 times smaller than Catalonia’s fiscal deficit over the past 30 years.
On the basis of past or present currencies?
Present currencies! Comparable currencies.
So, an independent Catalonia would be richer? Especially considering membership in the European Union, the Eurozone and the entire debate which is currently going on?
Yes. An independent Catalonia, first of all, would be richer. The thing is that I do not like such an idea. Why? Not that I wouldn’t like it being richer, I do not like the concept because we are in a global economic crisis and we have to think about changing certain values. And now it is not about growing for the sake of growing, not about consuming for the sake of consuming. That is to say we also have to change part of the model of what wealth means and how wealth is generated. But it is true that Catalonia would plainly have many more opportunities. And above all, business opportunities. We are not fully aware of the business opportunities generated by a state out of becoming a state, or by a metropolitan region like Barcelona’s out of becoming the capital of a state. Just in the real-estate sector, which is now in crisis, Catalonia would need 400,000 square meters just to accommodate embassies and ambassadorial residences. This would not be for us to pay, but for the countries that come to settle here. And this is one example, but I could tell you dozens more.
But what if we are left outside of Europe? There are people who insist that Catalonia, depending on the course the independence process follows, could remain outside the EU. What would happen to taxes, free circulation of people, goods, services, capital, with the Euro ... Would we be impoverished?
No. In this sense they are playing with us. “Catalonia outside Europe, Catalonia within Europe”. In Europe, the taxes, free circulation of goods, capital, and products, etc. do not only depend on the European Union. They depend on numerous treaties, for example the European Economic Area, the European Union Customs Union, Schengen, etc. The Schengen Area is not a founding treaty of the EU, we shouldn’t forget this. In this sense, the way to transfer multilateral treaties to the successor state, in this case Catalonia, would be as simple as making a notification of succession to the members which agreed to the treaty. It is as simple as saying to them, “Gentlemen, from now on, the responsibility Spain had over the Catalan territory when those treaties were enforced, I will assume it myself”. Regarding the founding treaties of international organizations such as the Council of Europe, the United Nations, etc, here we should ask for membership.
What about the EU? Well, several things will happen with the EU. Firstly, we must ask ourselves whether the EU is an international organization, because from my point of view it is not an international organization like the UN actually is. The EU is an organization for integration, a growing confederation of states from the start. So you do not have to apply a legislation dating back to 1978 and that, in addition, neither France, nor Spain, nor Italy, nor Germany have signed or ratified. The only existing regulations on the succession of treaties of international organisations is the 1978 Vienna Convention, which was not ratified by either the European or the United Nations greatest powers. So we cannot apply something that hasn’t been ratified. We must seek a political solution. What is the political solution? The political solution is that Catalonia has to sign the Act of Admission of Catalonia to the European Union and negotiate its economic participation, negotiate its participation in the Council of Ministers, in the European Parliament, etc. But while this is being negotiated, all the EU treaties, all the EU legislation will remain in force for the Catalans, in respect to the Catalan population and to the Catalan and foreign companies operating in Catalonia. Therefore there will be continuity in this regard as well as well as a legal security.
Have you detected in business and economic circles a fear that Catalonia might be left outside the EU and the Euro? What would be the consequences for custom duties and foreign investment?
No. Firstly, it is impossible. And secondly, regarding custom duties, if people knew that outside not only the EU but also outside the European Economic Area, the European Union Customs Union, the average custom duty is 1.4% or 1.5%...We’re not talking about custom duties of 20% or 30%, which would be impossible. We’re talking about tariffs of 1 point something! It’s nothing! But it won’t be this way anyway because, in the end, who will charge these custom fees? These tariffs will be charged by us, because 70% of the products exchanged between France and Spain transit through Catalonia. However, things don’t work like this. The world doesn’t work like this anymore. We want to create a state, but we must understand that today’s international community is not formed of states like it was in the 19th century. The state is no longer a closed nation-state; there is a much higher interdependence. And this will obviously be respected.
What I would like once and for all is for Spain to face the challenge of Catalonia’s independence because it is being said and discussed that Catalonia could remain outside the EU, outside Schengen, the Euro zone, but why won’t anyone tell us what will happen to Spain? Because this is a fundamental question. If the independence of Catalonia is a case of secession with the extinction of the legal identity of the Spanish State, the Spanish territories that have not seceded will also have to ask for admission to the EU and the United Nations. Unless you believe that, in essence, the non-seceded territories are Spain; then, Spain may keep its legal identity. But this is not yet clear. Moreover, I have already publicly defended the opposite version. I have already argued publicly that we are not facing the secession of Catalonia but facing the dissolution of Spain. Therefore the remaining territories [within Spain] will have to go through the same process they are planning for us. However, in the end, none of this will happen. Why? Because it is an issue that must be resolved politically.
If Spain is dissolved, what we were talking about earlier on regarding the Spanish Kingdom’s bonds…
Then they would all have to be distributed! But only in the event of a dissolution, not with a secession.