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December 1, 2017
Beyond the Catalan referendum, independence movements in Europe seem to enjoy a revival. But calls for greater autonomy or even secession are not just about cultural identity - financial discrepancies between regions also play a major role. Unsurprisingly, most of the regions with strong separatist tendencies are amongst the wealthiest in their respective countries. Calls for (more) independence seem to be loudest when national financial equalization mechanisms lead to results that are perceived as disproportional, such as in Spain or Italy. [more]
1 December 2017 Focus Europe Regional autonomy movements in Europe - also about finances Barbara Boettcher Senior Economist (+49) 69 910-31787 barbara.boettcher@db.com Kevin Koerner Economist (+49) 69 910-31718 kevin.koerner@db.com Figure 1: European autonomy/ separatist movements (selected) Sicily (IT) Istria (HR) Scotland (UK) N. Ireland (UK) Faroe Islands (DK) Brittany (FR) Basque country (ES) Catalonia (ES) Corsica (FR) South Tyrol (IT) Lombardy/Veneto (IT)) Flanders (BE) Bavaria (DE) Sardinia (IT) Source: Deutsche Bank Figure 2: Per capita income - regions with autonomy movements versus other parts of country Basque Country Catalonia Ven … South Tyrol Brussels London Scotland 60% 80% 100% 120% 140% 160% 180% ES IT BE UK DE % of national average, 2015 Bavaria Hamburg Flanders Madrid Source: Deutsche Bank, Eurostat ■ Beyond the Catalan referendum, independence movements in Europe seem to enjoy a revival. But calls for greater autonomy or even secession are not just about cultural identity - financial discrepancies between regions also play a major role. Unsurprisingly, most of the regions with strong separatist tendencies are amongst the wealthiest in their respective countries. Calls for (more) independence seem to be loudest when national financial equalization mechanisms lead to results that are perceived as disproportional, such as in Spain or Italy. Not only in Catalonia The political escalation in Spain that followed Catalonia's (unconstitutional) independence referendum early October has been a reminder: even in a Europe with (almost) no borders and a single market, calls for more regional autonomy have not silenced. Only a few weeks after the Catalan crisis unfold, an overwhelming majority of voters opted for greater autonomy in the wealthy Northern-Italian provinces of Lombardy and Veneto. Three years ago, Scotland decided in a contested referendum to stay within the UK. But that was before the Brexit vote, and there are concerns that a second Scottish referendum might be held if the UK leaves the EU with unfavorable terms. And after all, what is the Brexit vote itself than a call for more "regional" self-determination? It's about finances (and redistribution), too It is important to note, though, that most independence movements in Europe do not seek outright secession but rather greater regional autonomy within their respective nation-states. Underlying motives may vary between regions and include cultural, language-related, historical and other "emotional" aspects. But more often than not, public finances and the distribution of fiscal revenues play a key role as well. It therefore seems no coincidence that calls for more independence are often loudest in the most prosperous regions. Among Spanish regions, the Basque Country and Navarre — for decades haunted by separatist violence — rank second and third in terms of per capita income, right after Madrid (see lower chart). Catalonia follows in fourth place. Also in Italy, regions with strong independence movements lead the ranks. Lombardy has the second largest income per capita, right after South Tyrol (which already is partly autonomous and historically had strong separatist support). Veneto ranks sixth. Belgium is deeply divided between the French-speaking Wallonian and Dutch- speaking Flemish. In Flanders, with per capita income substantially higher than in Wallonia, 1 the separatist New Flemish Alliance is the strongest political force. Scotland's income per capita is at 93% of the UK's national average, but the latter 1Brussels, the largely francophone capital has a special status. Page 2 Deutsche Bank AG/London 1 December 2017 Focus Europe is pushed up strongly by London (170%). Scotland follows London, the South-East and East of England as the fourth richest region. In Germany, income divergence increased after the German reunification. Excluding the city states of Hamburg and Bremen, Bavaria is the most prosperous state per capita. 2 Figure 3: Spain: asymmetry between regions with/without fiscal autonomy 60 80 100 120 140 160 180 200 Extremadura Andalucia Cast. La… Murcia Canarias Asturias Galicia Valencia Cantabria Cast. y Leon Illes Balears La Rioja Aragón Catalonia Navarra Basque Country C. Madrid GDP per capita (2015) Per capita financial resources after equalisation (2014) 100 = national average Source: Deutsche Bank, Ministry of Finance and Civil Service/de la Fuente et al. (2014), Eurostat But while in Catalonia, Lombardy, Flanders and Scotland, independence movements enjoy broad public support (even though not necessarily by the majority), the Bavarian Party has no real political weight. The same applies to separatists in France such as in Brittany as well "Basque" and "Catalan" areas on the border with Spain. The strong independence movement in Corsica is a main exception. Figure 4: Germany - no change in relative ranking of fiscal capacity after equalisation 50 75 100 Bavaria Hesse Baden-Wuerttemberg Hamburg Lower Saxony NR-Westphalia Rhineland-Palatinate Schleswig-Holstein Saarland Brandenburg Saxony Saxony-Anhalt Thuringia Mecklenburg-V. Bremen Berlin before financial equalisation after financial equalisation % of per capita average, values for unweighted population, incl. municipal taxes (2015) Source: Deutsche Bank, Federal Ministry of Finance To understand these differences it might help to have a look at the national fiscal equalization schemes. In Italy, five regions (including South Tyrol) have autonomy status but this does not apply to Lombardy and Veneto. At the same time, Lombardy and Veneto are among the highest net payers per capita in the interregional fiscal transfers. In Spain, the Basque Country and Navarre have a special autonomy status, which exempts them from the Spanish equalization scheme. For Catalonia, however, the fiscal transfer of revenues between regions leads to a changed ranking in terms of per capita financial resources after equalization. Unsurprisingly, preserving the ranking has been a key Catalan demand (but denied by the constitutional court in 2010). This contrasts with the situation e.g. in Germany. Also here, a high level of financial integration between the federal states is reflected in a substantial redistribution of tax revenues. However, through the strong representation of the German states in national politics, net contributors have warranted that the German equalization scheme does not lead to a changed ranking of relative fiscal capacities (see figure opposite). This last example illustrates that in dealing with separatist sentiment, fiscal concessions may sometimes be a price worth paying. 2For a detailed discussion, see Deutsche Bank (2014): "Better off on their own? Economic aspects of regional autonomy and independence movements in Europe". Deutsche Bank AG/London Page 3 1 December 2017 Focus Europe Appendix 1 Important Disclosures *Other information available upon request *Prices are current as of the end of the previous trading session unless otherwise indicated and are sourced from local exchanges via Reuters, Bloomberg, and other vendors. Other information is sourced from Deutsche Bank, subject companies, and other sources. For disclosures pertaining to recommendations or estimates made on securities other than the primary subject of this research, please see the most recently published company report or visit our global disclosure look-up page on our website at http://gm.db.com/ger/disclosure/DisclosureDirectory.eqsr . 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