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Three Questions

Three Questions: Prof. David Bach on European Separatist Movements

The movement for independence in Catalonia is drawing a strong response from the Spanish government, and causing deep uncertainty about the political future of the region. At the same time, two regions in northern Italy voted in a nonbinding referendum for greater autonomy from Rome. Yale SOM’s David Bach writes about how these independence movements reflect a widespread rejection of the political establishment that can also be seen in nationalist political parties across Europe. He advises businesses operating in areas affected by political turmoil to look to first princples in assessing how to respond.

  • David Bach
    Deputy Dean for Executive Programs & Professor in the Practice of Management

Why are these movements coming to a head now? Is it related in any way to Brexit and other anti-globalization narratives, or is it driven by regional issues?

Separatism in Europe is nothing new. For decades, at least sizable minorities in the Basque Country, Tirol, Scotland, Brittany, and other regions have advocated for more autonomy or even independence. The question is why these movements have gotten close to majority support. There is indeed a thread that connects what is currently happening in Catalonia to Brexit, the strong performance of the far-right in the recent Austrian and German elections, as well as an earlier one in France, and even to Trump’s victory in the U.S.—a loss of faith in the prevailing political order and a rejection of the political establishment.

In Austria, this sentiment was channeled into support for the FPÖ. In Germany and France, it meant fringe parties—on the right and left—did better than ever and the old establishment parties of the center-left and center-right suffered humiliating losses. In the U.S., it was channeled in the Republican primaries into support for Trump (and to a lesser extent for Sanders on the Democratic side), ultimately taking him to the White House. In the UK, anger and frustration with the status quo were channeled effectively into an anti-EU campaign that led to Brexit. And in Catalonia, Catalan nationalists channeled similar sentiments into support for independence.

There are many differences across these regions and events. Many Catalan nationalists are left-of-center, for example, whereas the Austrian and German far-right includes Neo-Nazi elements. But the common thread is that entrepreneurial politicians—Trump, Kurz in Austria, Michael Gove and Boris Johnson in the UK, the AfD leaders in Germany, LePen and even Macron in France, and now of course Puigdemont and his allies in Catalonia—have tapped into this anger and a longing for radical change and have channeled it effectively for their political ends. Ironically, as voters have been finding out, in many cases anger and rejection of the status quo made for better electoral platforms than governing agendas.

How well prepared is the European political system to deal with such separatist movements?

An unintended consequence of European integration is that it has dramatically lowered the costs of secession. Neither the Scottish referendum nor the separatist movement in Catalonia would have happened without the EU. Because Europe’s Single Market project has been so successful, it is now possible to have the best of both worlds—you can have a fairly small, culturally relatively homogenous country with a reasonable degree of political autonomy and still benefit from near-barrier-free access to a market of 500 million customers, low public borrowing costs in the Eurozone, and global clout in trade negotiations.

The EU must do whatever it can to disincentivized this “have your cake and eat it, too” dynamic and in my view it’s done an outstanding job. Brexiteers convinced the British public that once the UK voted to leave, EU leaders wouldn’t have a choice but to continue to give Britain unfettered access to the European market. The economic costs of disruption would simply be too great, they argued. Instead, the EU has been remarkably unified. The “four freedoms” of free movement of goods, capital, services, and people, as they are called, are inseparable and Britain won’t get the first three without the fourth. That’s why “hard Brexit” is the likely outcome of current negations. There will be economic costs to the remaining member states for sure, but these are lower than the political costs, or the political risk, of sending a message that a member state might be better off outside the EU. Wary of a domino effect, EU leaders have been playing hardball.

There are clear parallels to Catalonia. Catalan nationalists have been telling their citizens that as soon as Catalonia leaves Spain, it will be admitted as a new EU member. EU leaders have responded with a resounding “No way!” and they have been remarkably unified on this—again, because of shared political interest to not incentivize other potential breakaway regions. If Catalonia leaves, it will have to apply for EU membership, a process that takes years and where each member state—including Spain—has a veto. Catalan nationalists tell voters that Spain wouldn’t have a choice but to accept Catalonia as a member—the exact same argument Brexiteers made. Why have more than 1,000 businesses formally moved their headquarters out of Catalonia? Because they know the EU and Spain are not bluffing; this in fact has reduced support for independence somewhat since the current crisis began it seems.

What should businesses operating in these areas do to navigate such contentious issues of identity and politics?

We have seen a dramatic exodus of businesses from Catalonia. More than 1,000 have left. This shows that business can deal with one set of rules or a different set of rules, but not with tremendous uncertainty. And that’s what the current crisis represents. It would be irresponsible for a leading bank not to move its headquarters outside of Catalonia, for example, since it can’t assure otherwise that it will continue to have access to funds from the ECB or Bank of Spain. The situation is also challenging for firms that built part of their identity around their local, Catalan roots, like cava maker Freixenet, for example, and who now have to pick sides without looking like they are picking sides. This requires diplomatic skill. Business is adaptable and in the long run will find ways to weave itself into local community fabrics wherever it operates. But a shock to the system like this poses distinct challenges. In a situation like this, my advice is to focus on first principles: What is mission critical for our business? For banks, it’s stable regulatory frameworks, protection of borrowers, access to overnight facilities…etc. For a company like Freixenet, which sells 80 percent of its production outside of Spain, it’s a predictable export regime and access to global markets. That should drive your decision, not your political leanings on the issue at hand. When the dust settles, you can always reassess.

Department: Three Questions