Barcelona, photo: Pescanik

Barcelona, photo: Pescanik

– Secession within EU amounts to fiscal devolution

– Spain is already among the most fiscally decentralised states, which makes Catalonia’s secession less consequential in fiscal terms

– Catalonia’s secession, if it were to happen, would have to be unilateral rather than consensual, given the central government’s strong opposition

– A legitimacy test or legitimacy crisis, meaning a conflict of the public wills of the central and secessionist governments, is probable if Catalonia’s government proceeds with the implementation of the decision of the referendum, assuming it is positive

– Secessions take a long time and constitutional accommodation is always possible if there are no unnecessary conflicts and repressions with enduring legacy of injustice

Catalonia is going to vote in a referendum whether to secede from Spain. Probably the closest comparison is that of Quebec’s attempt to leave Canada. However, unlike the Spanish Supreme Court, which ruled the referendum for secession to be unconstitutional, the Canadian Supreme Court ruled that even though Quebec has no right to secede, both under international and Canadian law, the federal government should respect the democratic decision of Quebec, if indeed it is an enduring one, and enter into negotiations for separation. The Catalan case is also different from that of Scotland, which has a constitutional right to secede if it decides to do so. It is also different from the UK’s decision to leave the EU because that is legal under the EU treaty. There are three additional widely supported criteria that must be satisfied, in addition to having the will and the right to secede: one is that the decision has not been made in the spur of the moment, the second is that it has not been influenced by an outside intervention (it is an act of self-determination), and the third is that the seceding state will not see diminishing rights to any segment of its population.

What happens if the federal government opposes the secession as in the case of Catalonia, and the highest court rules that it is against the law of the land, i.e. the constitution does not provide for it? Then secession, if it is to happen, has to happen against the will of the federal government and against the law. How can that happen?

There have been a number of secessions in recent decades, some supervised by the Security Council, and even by the International Court of Justice (ICJ), or by an international advisory commission (e.g. Badinter’s Commission), or by UN or EU mediation (Ahtisaari’s mission as the Security Council’s Special Envoy for Kosovo is the most notable for the former, and Lajčak’s in Montenegro for the latter), while others have been unilateral when they were not in fact annexations (e.g. Crimea). In the case of Catalonia, international involvement is not very likely, so if the Catalan people and their government are determined to secede, they will have to do it unilaterally. How could they do that?

One example is the secession of Slovenia, at the time a republic in Yugoslavia. The Yugoslav Supreme Court was not in favour of it and the Yugoslav government sent the army to stop the Slovenian authorities from taking control of the state’s border. In addition, the Slovenian authorities stopped paying taxes, or rather contributions, to the federal government. Badinter’s Commission, which was set up to advise the European Economic Community (EEC), ruled in favour of referendum-based secessions if the state, in this case the federal state of Yugoslavia, is in the advanced stages of the process of disintegration. The referendum was to be the first step towards state building and the basis for EEC, and later EU, recognition.

States are real creatures and not legal creations – this is the accepted interpretation of international law, which ICJ was to reaffirm later in the case of Kosovo. Put differently, internal sovereignty precedes the external one, not the other way around.

Montenegro seceded from Yugoslavia (which at that time was a federation of Serbia and Montenegro) in a similar manner, with unilateral fiscal devolution, only in reversed order. As the first step, Montenegro decided to be fiscally independent, which meant that it would not contribute to or receive transfers from the federal budget anymore and would instead live on its own money. That was easier to do without the federal government protesting because Montenegro was the net recipient of transfers from the federal budget. Next, it decided to adopt the German mark as its legal tender, on the justification that the Yugoslav (Serbian) dinar was highly inflationary and thus was in effect a fiscal instrument of the federal government. Only then, and with the mediation and supervision of the EU, it held the referendum and became an independent state.

In a number of other cases, not just in Yugoslavia, secessions also involved conflicts over territories. The Macedonian secession is an exception because nobody contested its territory. There was an agreement with whatever was left of Yugoslavia, after the secessions of Slovenia and Croatia, to settle the outstanding property claims, primarily having to do with the Yugoslav army, and there was full fiscal and monetary devolution. In other cases in Yugoslavia and elsewhere, however, there were conflicts over territories. In most other cases, there was international involvement, prompted by the military and other violent conflicts. In most of these cases, as in the case of Crimea and the east of Ukraine, there was outside interference, military in particular, which often tended to legitimise the secession it aimed to suppress and to delegitimise the annexations from the outside.

The Yugoslav case is comparable to the Spanish one because of their asymmetric federalism. Unlike Czechoslovakia or the federation (or state union) of Serbia and Montenegro, which were binary federations, the secession of Catalonia opens up the problem of the constitutional set-up and stability of the rest of federal Spain. Yugoslavia proved unable to deal with the secession of Slovenia without disintegrating. That is clearly the worry of the central Spanish government as well – that the secession of Catalonia will lead to other secessions and potentially to the dissolution of Spain.

Particularly interesting is the case of Kosovo’s secession from Serbia where there was a referendum to secede which was ruled illegal by the Serbian Supreme Court in 1991. After an overwhelming majority voted for secession in the referendum, the government of Kosovo fiscally disintegrated from Serbia and ran Kosovo as a parallel or shadow state. The Serbian government controlled Kosovo with martial law. Eventually, there was a violent uprising and international military intervention. The Security Council supervised the process of state building, controlled the borders, and supervised the legal system. Eventually, in 2008, Kosovo declared independence, and in 2010, the ICJ judged that it did not break any laws by doing so.

In all secessions, fiscal independence and control of territory are crucial. International community in one form or another requires the fulfilment of other conditions mentioned above. In the case of Catalonia, like in the cases of Quebec and Scotland, the borders are clear and not contested, i.e. the control over the territory is pretty much settled. The issue is who rules over it.

That is a legal issue, but even more to the point, it is the real issue of who collects the taxes and supplies the services of the government. Within the EU, legal standards after the secession should not diminish. Outside intervention is unlikely and certainly plays no role in the case of Catalonia. The key question then is fiscal secession, especially given the membership in the EMU.

Indeed, within the EU, secession amounts to nothing more than full fiscal devolution outside of the obligations towards the EU. A good example is the dissolution of Czechoslovakia, which happened when both countries were outside of the EU but were expecting to join it. It amounted to the two successor states crafting their separate fiscal systems.

Control of the border with non-EU countries is important, and one point where the issue of control over the territory may arise. If Catalonia is also out of the EU when it secedes from Spain, than it has to establish control over all of its borders, those with Spain included. None of that is possible without the consent of Spain and the EU if it is to happen without conflict over the borders, i.e. over the control of the territory. If that consent is not forthcoming, what can Catalonia do?

It can attempt fiscal devolution. That amounts to the strategy, very often found in secessions, to claim internal sovereignty before assuming external sovereignty.

Spain is already fiscally decentralised, and in an asymmetric manner at that. Most of the taxes are collected by the provinces, e.g. by Catalonia, and then sent to the central government. Catalonia is a net contributor to the federal budget. The central government also collects social security and healthcare and the contributions for the unemployment fund. In the case of Yugoslavia, social and welfare funds were local (similar to the EU). Also, unlike Spain, there were no federally owned and managed services and corporations apart from the production of arms and ammunition. Mostly, the federal state was the army, the central bank, and the federal government’s employees (plus foreign debts, for which mutual obligations were negotiated a couple of years before disintegration).

So, Catalonia’s legislative bodies would have to design a fiscal system for the new state. That would also mean that Spain would stop receiving taxes and contributions from Catalonia. That will in all probability instigate a confrontation, because the central government clearly intends to proceed with legal and other coercive measures to overturn all the decisions of the Catalan government. It is highly likely that the central government will take over directly some of the fiscal and budgetary competencies. It is not likely that Catalonia will go underground the way Kosovo did after its secession bid was foiled by the central government.

The difference between the Yugoslav states and most other secessions is that the federal budget of Yugoslavia, like that of the EU, was relying mostly, apart from tariffs, on contributions from the member states and not on taxes. In addition, social security was not provided centrally. So, member states could secede in pretty much the same way as the UK is doing from the EU right now. This is different with a federal state that is also a tax and social security union. The seceding state would have to devolve fiscally and in terms of social security contributions before it can be fully fiscally independent.

In addition, in the case of Yugoslavia, but not the EU, the federation was a military state, which is to say it had an army. Spain is a military and security state (it has central control of police and other security services). The central government can use this to impose its will on the member states. That can lead to a legitimacy crisis and thus to the test of legitimacy both of the central government and of the seceding state. Indeed, in quite a number of cases, that was the source of violent conflicts over control of the territory of the seceding state.

If there is going to be a legitimacy test – a test over the right to coerce – to determine who rightfully rules Catalonia, it would be better for the central government if it could create an expectation of sharp, prolonged, and costly legal and physical conflict than actually entering into such a conflict. The deterrence effect of the actual show of force can disappear if it goes against the sense of justice of those who are subjected to the coercion. However, threats of conflict notwithstanding, secessionists need to proceed with the referendum in order to have the legitimacy showdown to begin with. What fiscal devolution does, especially if it is gradual, is lower the stakes for the central government once there is a legitimacy test, so it is less likely to rely on the use of force to prevail once the test eventually comes.

Thus, though Spain is a decentralised state, in some ways similar to Canada, which is to say it is a rather loose federation, Catalonia would have to negotiate its secession from Spain with the Spanish central government in order to craft its separate budget and social security funds. It would be difficult to unilaterally fiscally devolve if the central government forcefully opposes that. The legality of the central government’s interventions, if they are not violent but rather administrative, will be hard to contest. So, it would take a prolonged and unwavering commitment to independence to convince the rest of Spain to gradually let Catalonia go. And that depends on the long-term advantages of independence over federation with Spain, which may not exist.

Secessions tend to be prolonged processes. In the case of Yugoslavia, one can very well argue that the secessionist bid of Croatia started at the same time that the state of Yugoslavia was born. That is not to say that secessions are somehow inevitable if indeed there is a long and enduring political will to go independent. In some cases, again Quebec is a good example, democratic and constitutional accommodation may eventually end the quest for independence. Indeed, the federalisation of Spain after the end of Franco’s dictatorship provided an opportunity for another such case. In addition, membership in the EU should add to the stability of the member states. Indeed, this has been true of a number of Central European and Balkan member states with internal ethnic and other divisions. So, there is a constitutional accommodation which rules out support for secession in most cases. The problem is finding it when a state is put to a legitimacy test with a secessionist referendum.

Peščanik.net, 30.09.2017.

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