WIIW The Vienna Institute for International Economic Studies - Wiener Institut für Internationale Wirtschaftsvergleiche

A commentary by Vladimir Gligorov.
Photo credit: Catalonia, cobalt and chrome (CC BY-NC 2.0)

• Historically, secession has tended to fall into one of three broad categories: a vote where the result is accepted by the central authority, a unilateral secession with outside mediation or force, and a unilateral secession without (significant) outside intervention.
• Catalonia falls into the third category. In this case, the break-up of Yugoslavia is in some cases an instructive example.
• History shows that, ultimately, the establishment of Catalan independence will come down to two things: achieving fiscal independence, and establishing control of its borders. Neither is straightforward.
• If Catalonia continues to push for full independence, a legitimacy crisis will occur. However, there is still a face-saving way out for both sides, assuming that the authorities in Madrid and Barcelona act responsibly.

Catalonia held a referendum whether to secede from Spain on October 1st. 92% of voters opted for secession, on a 43% turnout. On October 10^th, Carles Puigdemont, the President of the Generalitat of Catalonia, declared independence, but the immediately suspended the declaration in order to leave time for further negotiations with the Spanish government.

When attempting to predict how events will develop from here, it is instructive to look at historical examples. One possible comparison is Quebec’s attempt to leave Canada in 1995. However, unlike the Spanish Supreme Court, which ruled the Catalan independence referendum to be unconstitutional, the Canadian Supreme Court decided that even though Quebec had no right to secede, both under international and Canadian law, the federal government should respect the democratic decision of Quebec 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 voted to remain part of the UK in 2015). It is also different from the UK’s decision to leave the EU, because that is legal under the EU treaty. If secession is to happen in Catalonia, it will be against both the will of the federal government and the law of Spain.

In addition to having the will and right to secede, international experts also generally agree that three further conditions must be met for secession to take place:

1. That the decision has not been made in the spur of the moment,
2. That it has not been influenced by an outside intervention (i.e. it is an act of self-determination),
3. The seceding state will not then take any actions that reduce the rights of a segment of its population.

Unilateral secessions

There have been a number of unilateral secessions in recent decades, many supervised by external bodies. These include the UN Security Council, the International Court of Justice (ICJ), and international advisory commissions. Some have also involved 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 taken the form of annexations (e.g. Crimea). In the case of Catalonia, however, international involvement is not very likely. Therefore, if Catalonia is to secede, it will have to do so unilaterally.

The most obvious example of this path in recent history is Slovenia, which declared independence from Yugoslavia in 1991. At the time, Slovenia was a republic in Yugoslavia. The Yugoslav Supreme Court opposed independence for Slovenia (although the Yugoslav constitution, like that of the Soviet Union, approved of self-determination of the member states of the federation, albeit not altogether clearly in the 1974 version). After Slovenia declared independence, the Yugoslav government sent the country’s army to stop the Slovenian authorities from taking control of the state’s border. In addition to declaring independence, the Slovenian authorities also stopped paying taxes to the federal government. The Arbitration Commission of the Conference on Yugoslavia (also known as Badinter’s Commission), which was set up to advise the European Economic Community (EEC) on whether to recognise the new states or not, ruled in favour of referendum-based secessions if the state, in this case the federal state of Yugoslavia, was 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 the EU, recognition of Slovenia and other former Yugoslav republics.

One of the most significant implications of how international actors responded to Slovenia’s unilateral declaration of independence, which is highly relevant in the Catalan case, is that states are real creatures and not legal creations. This is the accepted interpretation of international law, which the ICJ was to reaffirm later in the case of Kosovo. Put differently, internal sovereignty precedes external sovereignty, not the other way around.

Montenegro provides another important example from the Catalan perspective. It seceded from Yugoslavia (which at that time was a federation of Serbia and Montenegro) in 2006. This was done in a similar manner to Slovenia, with a declaration of independence and unilateral fiscal devolution, only in the opposite order. As a first step, Montenegro decided to be fiscally independent, which meant that it would no longer contribute to or receive transfers from the federal budget, and would instead live on its own resources. That was easier for the federal government to accept than in the case of Slovenia, because Montenegro was a net recipient of transfers from the federal budget. Next, Montenegro 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 an independence referendum and became a separate state.

Territorial conflicts

In a number of other cases, not just in Yugoslavia, secessions also involved conflicts over territories. Macedonian secession was an exception to this 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 in Eastern Europe, however, secession has involved conflicts over territories. In most cases, there was international involvement, often violent. In most of these cases, such as in Crimea and the east of Ukraine, there was outside interference, military in particular, which tends to delegitimise both the secession and the annexation.

The case of Bosnia and Herzegovina (BiH) is especially important. It received external recognition before it acquired internal sovereignty. The BiH constitution, which is part of the international peace agreement, approved by the UN Security Council, prohibits secession by the two state’s entities. Internal sovereignty was in part secured with the control of borders and with the introduction of VAT as the main source of budget revenues of the state as a whole and of its entities (and cantons, the local governments in one of the entities). Therefore, BiH’s internal sovereignty was based from a very early stage on control of its borders and a common fiscal system.

Kosovo’s secession from Serbia also provides an interesting example. Kosovo held a referendum to secede in 1991, but this was ruled illegal by the Serbian Supreme Court. After an overwhelming majority voted for Kosovan secession in the referendum, the government of Kosovo fiscally separated itself from Serbia and ran Kosovo as a parallel or shadow state. Thereafter, the Serbian government controlled Kosovo via martial law. Eventually, there was a violent uprising and international military intervention. The UN Security Council oversaw the process of state building in Kosovo, 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. The UN and the EU, however, still maintain a presence in Kosovo, in order to ensure its internal sovereignty over the whole territory and to support state building, especially in terms of rule of law.

As has been demonstrated, cases of secession from Yugoslavia took several forms. However, in a broad sense, the Yugoslav case is comparable to that of Spain because of both countries’ asymmetric federalism. Unlike Czechoslovakia or the federation (or state union) of Serbia and Montenegro, which were binary federations, the potential 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. The Spanish government is also clearly worried that the secession of Catalonia will lead to other secessions and potentially the dissolution of Spain.

Fiscal independence and control of territory are the key to successful secession

In all secessions, fiscal independence and control of territory are crucial. In the case of Catalonia, as in the cases of Quebec and Scotland, the borders are clear and not contested; control over the territory is pretty much settled. Moreover, within the EU, legal standards after any secession should not diminish. Finally, outside intervention is highly unlikely to play any role in the case of Catalonia. The real issue in a possible Catalan secession is, therefore, who collects the taxes and supplies the services of the government.

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. The break-up of Czechoslovakia essentially amounted to the two successor states creating separate fiscal systems.

If it decides to go ahead with independence, therefore, and Madrid continues to say no, Catalonia will need to 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. However, while most of the taxes are collected by the provinces, e.g. by Catalonia, they are then sent to the central government. Catalonia is a net contributor to the federal budget. The central government also collects contributions for social security, healthcare, and the unemployment fund.

Therefore, in the case of independence, 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 would probably lead to a confrontation. It is highly likely that the Spanish central government would take over directly some of the fiscal and budgetary competencies currently handled locally. It is not likely that Catalonia will go underground, i.e. erect a shadow or parallel state, the way Kosovo did after its secession bid was foiled by the central government.

Fiscal arrangements make the Spanish case more difficult than that of Yugoslavia

In terms of fiscal arrangements, Spain is very different from Yugoslavia, where social and welfare funds were collected and distributed locally. Also, unlike Spain, in Yugoslavia there were no federally owned and managed services and corporations, apart from the production of arms and ammunition. Mostly, the Yugoslav 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 and the Fund for Less Developed Regions, which was dissolved before the state broke up).

The difference between the Yugoslav states and most other secessions is that the federal budget of Yugoslavia, like that of the EU, relied mostly, apart from tariffs, on contributions from the member states and not on taxes. In addition, social security was not provided centrally. Therefore, member states could secede in pretty much the same way as the UK is currently doing from the EU. 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.

Establishing territorial control

If Catalonia also leaves the EU when it secedes from Spain (which appears to be inevitable), than it has to establish control over all of its borders, those with Spain included. If that is to happen without conflict over the control of the borders, that will require the consent of Spain and the EU. If that consent is not forthcoming, conflict is likely. Again, the case of Yugoslavia provides interesting parallels.

Yugoslavia 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, or at least parts of them). The central government can use this to impose its will on its constituent parts, including Catalonia. That could lead to a legitimacy crisis and thus to a test of the legitimacy both of the central government and of the Catalan authorities. In a number of historical cases, this test of legitimacy 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, rather than actually entering into such a conflict. The deterrence effect of an 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 needed to proceed with the referendum in order to have the legitimacy showdown to begin with. What fiscal devolution does, especially if it is gradual, like in Yugoslavia, is to 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. However, in the case of Yugoslavia, that was in most cases insufficient because of the territorial issues which most of the secessions opened up.

Therefore, although 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 a separate budget and social security funds. It would be difficult to achieve unilateral fiscal devolution if the central government forcefully opposed it. The legality of the central government’s interventions, if they are not violent but rather administrative, would be hard to contest. As a result, it would take a prolonged and unwavering commitment to independence to convince the rest of Spain to gradually let Catalonia go. That in turn depends on the perceived long-term advantages of independence over federation with Spain, which may not exist.

Although the result of the referendum was overwhelmingly in favour of independence, turnout was well below 50%, significantly reducing its legitimacy. However, the legitimacy of independence received support from the suppressive and violent measures by the Spanish government in attempting to stop the referendum taking place. Catalonia is likely to look for EU mediation, but this will not be forthcoming. Obviously, the EU will have to step in if violence erupts and there is prolonged legitimacy crisis, but if this happens, it is unlikely that the intervention will be favourable to Catalonia.

A compromise remains possible

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 as the creation of the state of Yugoslavia in 1918 (the break up happened in 1991). That is not to say that secessions are somehow inevitable, even if there is a long and enduring political will to achieve independence. In Quebec, for example, democratic and constitutional accommodation of some secessionist demands by the central authorities eventually ended the quest for independence. The federalisation of Spain after the end of Franco’s dictatorship is an example of this. In addition, membership in the EU should add to the internal stability of its member states. This has been true of a number of EU-CEE counties where internal ethnic and other divisions exists.

In most cases, constitutional accommodation which reduces support for outright secession is possible. The problem is finding achieving this balance when, as in the case of Spain and Catalonia, a state faces a legitimacy test brought about by an independence referendum.

This is an updated version of an article that originally appeared in Pescanik.