How Debt Drives Secessionists


Leipzig, 1985: Stricken by US-dollar debt incurred in the 1970s, the Soviet Bloc is big business for European banks. At a spring banking trade fair, bank representatives "outbid one another". They offer larger and larger loans to the Warsaw Bloc states looking to service earlier debt.

Moscow and East Berlin are "especially sought after" debtors, writes a journalist from German weekly Der Spiegel. The bankers reason that Communist Party control over the various national economies would make the East Pact nations "absolutely reliable debt servicers."

Like Southern European debtors today, Communist East Berlin vowed to spur exports and stop over-relying on Western imports at that 1985 fair.

But the East’s economic woes continued to mount. Today, Germans still debate whether it was debt that drove the DDR under. Western German historians argue the party’s attempt to provide Germans with "cheap bread, dry apartments and work" doomed Soviet Germany.

The planned economy priced bread at a lower cost than grain, wrote the Berliner Tagesspiegel back in 2009. And that meant that farmers fed bread — not grain — to pigs. The historians’ case, in a nutshell: "Systematic deficiencies" led to a build up of Eastern Bloc debt and then triggered communism’s downfall.

All those Western loans may not have been 100 per cent financially motivated, historical documents dating to the period show. In a classified 1982 position paper, the CIA’s National Intelligence Council argued (pdf) that the Eastern Bloc debt crisis provided the West with "an unusual opportunity" to influence geopolitical developments in the East.

Compared to now, the eighties was a period of high interest rates. And by the late 1980s, the East German economics planning commission was forced to "come up with new ways to pay the bills" day after day, Gerhard Schürer told German documentary makers. In desperation, the commission flogged off East German reserves. It sold East German consumer goods to West German companies. That produced shortages, and angered East Germans, spurring on anti-government protestors who tore down the Berlin Wall in 1989.

Arguably, the Soviet debt crisis of the 1980s contributed to the European political settlement of the 1990s. Could history repeat itself today?

"A political earthquake" shook Barcelona last Tuesday, wrote centre-left Madrid daily El País on Sunday. Separatists mark Catalonia’s national day — commemorating the end of Catalonia’s independence — with a march on 11 September every year. Last year, "barely 10,000" people showed up. Last week, police estimated 1.5 million demonstrators marched. That’s one fifth of the entire population of Catalonia.

This new push for independence stems from Catalonia’s fiscal problems, says Milan daily Corriere della Sera. Catalonia is Spain’s richest region. But it has been "pushed out of the markets" since summer.

The cause of that expulsion, complain separatist businesspeople, is the Spanish federal system. As much as eight percent of Catalan GNP can be transferred to Madrid, a figure that’s double the amount that can be transferred within the German system, the president of the Catalan chamber of commerce Antonio Abad told the paper.

Meanwhile the Catalan state government, the Generalitat, has been suffering from serious liquidity problems. Starting June, it was unable to pay out "costs and subsidies to social service providers", reports Spanish financial site El Economista. That meant that many social workers went unpaid in Catalonia over the summer.

While the Generalitat did eventually pay those bills earlier this month, it has to make payments on around an eighth of its total debt in the coming months. Fears about its ability to service debts preceded Catalan premier Artur Mas’ bailout request to Madrid in summer.

But, at the same time, Mas had to appeal to a constituency angry at Catalonia’s fiscal transfers to Madrid. A bare majority of Catalans (51 per cent) now support independence, says bilingual Barcelona daily La Vanguardia. It traces the growing support for independence to a "hyper-activist" middle class. This group of around a fifth of Catalans was the driving force behind last week’s march, and calls for independence, opines La Vanguardia.

But Spanish PM Mariano Rahoy is unlikely to heed Catalonia’s desire to keep more of its tax revenues, comments French business daily La Tribune. Rahoy’s Popular Party draws on the centralist tendencies of Spanish conservatives. And the Spanish prime minister has described the demonstration as "hubbub".

And in the Basque Country, another Spanish secession candidate, pro-independence parties have also been heartened by last week’s demonstration in Barcelona, writes Basque website EITB. Despite the end of separatist guerrilla force ETA, "separatist forces have grown and grown" in the northern Spanish region, the site concludes.

In general, British prime minister David Cameron has proved less dogmatic on issues of succession than Rajoy, comments Spanish website Expansión. Scottish leader Alex Salmond is likely to schedule a referendum on independence for 2014.

But unlike Spanish conservatives, Cameron has not attempted to "get in the way" of the Scottish government’s political manoeuvring over the referendum, says Expansión . That decision derives from "British pragmatism", opines the business website. By not trying to force off the table a referendum, London has succeeded in avoiding "reinforcing nationalist victimhood and increasing nationalist feeling".

Yet, like Catalonia, recent political debate in Edinburgh has seen Scottish nationalists push for greater control over fiscal leavers — signalling an admixture of crisis and nationalism.

Indeed, an upswing nationalism across Europe is one of the consequences of the euro crisis comments Jacques Sapir, economist and scholastic director at the School for Advanced Studies in the Social Sciences in Paris.

Sapir, a euro sceptic, tells French political blog Liberté Politique that he’s worried about the growing risk that the Spanish state will face "serious problems" due to the crisis. "That would inflame the situation across Europe," he forecasts, claiming that separatists from Belgium to Italy would be heartened by any collapse of Spain in its current form.

ABOUT BEST OF THE REST: It’s a big world out there and plenty of commentators and journalists are writing about it — but not always in English. And not surprisingly, ideas about big events of the day shift when you move away from the Anglosphere. Best of the Rest is a fortnightly NM feature by Berlin-based journalist Charles McPhedran. Charles reads the news in French, German, Spanish and Portuguese and reports on what the rest of the world is saying about the big stories.  

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