Property developer looks to offload £244m retail assets, which have been hit by economic crisis in Spain and Portugal
The property developer British Land is looking to sell its £255m portfolio of retail properties in mainland Europe after the assets lost almost a fifth of their value on the back of the economic crisis in Spain and Portugal.
British Land said on Tuesday its mainland European properties, which account for 2.4% of its £10.5bn portfolio, fell 17% in value in the year to the end of March, hit by rental concessions and widening yields. “Looking forward, we consider Europe to be a subscale business for us and our intention is to exit over time,” the chief executive, Chris Grigg, said, adding that the company was not having active discussions with buyers at the moment.
“It could be a long haul, the market’s not that easy in Europe at the moment and we don’t expect any near-term announcement but this is a very clear statement of intent,” he said. British Land entered mainland Europe in 2005 with the purchase of Pillar Property, which had assets in Spain and Italy. It co-owns Spain’s biggest mall, the 200,000 sq metre (2.2m sq ft) Puerto Venecia shopping centre in Zaragoza, and owns a 65% share in the continental European property fund PREF.
Retail sales in the eurozone fell for the second month in a row in March, reflecting the bloc’s high jobless rate and restricted credit conditions, with the worst slump seen in Spain where retail sales fell 10.5% on an annual basis. Like its rivals Hammerson and Land Securities, British Land has been focusing on its core office and shopping centre businesses in London and key UK regions to combat the tough economic outlook facing property markets in Britain and Europe.
In March, it raised almost £1bn for new investments and developments via a share placement and sale of an office block in the City of London. The company, which is building the Cheesegrater skyscraper in the City, said its EPRA (European Public Real Estate Association) net asset value for the year to the end of March rose 0.2% to 596p per share, while profits before tax increased 1.9% to £274m. It also increased its dividend by 1.1% to 26.4p a share.
Eurogroup will decide today whether to approve aid tranches for Greece and Cyprus, after seeing fresh anti-austerity protests in Spain over the weekend
Director’s take on Spain’s economic jeopardy, I’m So Excited should remind the Rajoy government that the end is still in doubt
A plane circles in the sky with a damaged undercarriage. The passengers get up to high jinks as they wait for the inevitable crash landing. A cast of call girls, gay cabin crew and a crooked banker on the run says this is your traditional 1970s-style Hollywood airline disaster comedy. In fact, it is how Spain’s most renowned film director, Pedro Almodóvar sees the current state of his country.
Needless to say, that is not the view of Mariano Rajoy’s government in Madrid. While not disputing that Spain has its problems, the administration say the wipeout that was looming last summer has been avoided.
Proof is that financial market conditions have eased since Mario Draghi said that the European Central Bank would do whatever it took to safeguard the future of the euro. Spain used the breathing space to patch up its creaking banking system with European money, and has subjected itself to an eye-watering austerity programme that makes George Osborne’s deficit reduction plan look like Keynesian largesse. Labour market reforms – wage cuts and more flexible working practices – have repaired the damage caused to competitiveness by the construction and housing bubble of the 2000s, resulting in multinational firms moving production to Spain from higher cost parts of the eurozone, such as France and Belgium.
Spanish policymakers also think Europe-wide developments are helpful. Governments are being given more time to put their public finances in order and there is growing confidence in Madrid that a banking union will be agreed despite German reservations. Spain, with its still-fragile banking system and bombed-out real estate sector, is desperate for a pan-European system for resolving bank crises and for guaranteeing deposits, and thinks that in the end Berlin will come round to the idea.
Indeed, Rajoy’s government favours not just banking union but fiscal union, with a European finance minister having control over a budget that could be used to boost growth in struggling parts of the eurozone.
Spain says two things are needed to make the single currency work better: economic reform at a country level and a more integrated macro-economic policy at European level. Madrid argues the single market can only work effectively with a fixed exchange rate system, because a floating rate system would allow member states to grab competitive advantages through devaluation. But giving up control of interest rates and exchange rates can be costly in terms of lost jobs and output unless there is a more activist fiscal policy. This, Spain believes, is what Europe lacks.
The political will to make this happen is often underestimated in Britain. Spain thinks it had no choice to join the euro once Germany and France had decided to go ahead with the project. What’s more, it is convinced monetary union will survive unless Germany decides to pull the plug on France: the one country that has always been able to rely on support from Berlin when the going gets really tough.
Beneath the surface in Madrid, there is simmering anger at the refusal of Germany to help struggling countries by importing more, and resentment that different rules seem to apply to unreformed France. But there is no deep-seated euroscepticism and certainly no nostalgia for the peseta; rather an acceptance that if Spain did regain control of the printing presses the country really would be in trouble.
Even so, the threat of a crash landing remains. That’s not just because unemployment in Spain has risen by three and a half million since the start of the crisis and has now reached 27%, or that the domestic economy has shrunk by a sixth. It is that Spain is up to its eyeballs in debt, with no likely improvement in prospect. Despite austerity, little progress is being made in reducing the budget deficit and national debt is heading for well over 100% of gross domestic product. In the absence of more rapid growth and a banking union being agreed swiftly, a Greek-style debt restructuring seems eminently possible.
Spain is perhaps the emblematic eurozone country. Its past performance reflects the design flaws in the single currency; it is trapped in a low-growth, high-debt vortex; and it can only recover if a reluctant Germany backs plans for integration.
Let’s take those three points in turn. Interest rates were cut when Spain lost control of its own monetary policy by joining the euro, leading to over-investment in the property sector. There was misallocation of resources on a grand scale as banks lent recklessly for commercial and residential property projects. Governments everywhere love construction booms because they generate the two things politicians like: jobs and tax revenues. Spain’s was no exception.
The dark side of the real estate bubble was that the private sector ran massive deficits, worth more than 10% of national output by the time the music stopped. Left to its own devices, Spain would have run a much tighter monetary policy during the first half of the 2000s, but the European Central Bank kept interest rates low, which at the time suited Germany.
Recession led to private sector retrenchment. Firms went bust, real estate projects were mothballed, banks stopped lending, investment plunged and consumers stopped spending. The private sector moved into surplus, but this was matched by a public sector deficit of 10% of GDP.
Spain’s boom was accompanied by higher inflation than in the rest of the eurozone, so its goods became uncompetitive. Devaluation was ruled out by membership of the euro so Spain opted for the German solution; grinding out improvements through structural reforms of labour and product markets.
This brings us on to the second problem; the lack of demand either at a domestic or European level. Madrid’s entire economic strategy is based around the idea of export-led growth. It sees no prospect of a pick-up in domestic demand until 2015 but is confident that the economy will start to grow in 2014 because hyper-competitive Spanish goods will clean up across the eurozone and beyond. Yet the improvements in the trade balance seen so far have largely been the result of falling imports rather than rising exports. This is hardly surprising given that every eurozone state is doing what Spain is doing: squeezing the domestic economy and relying on exports to take up the slack. This cannot happen.
Finally, there is the German question. Madrid is certainly right in its assumption that Berlin does not want to blamed for breaking up the euro, but Angela Merkel has been doing her best to slow down the pace of reform.
Germany is no hurry for a banking union, let alone a fiscal union, but will do just enough to prevent a crash landing. The risk, though, is not just of a crash landing, but that the plane hits the ground with an almighty thump because altitude has been lost without anyone realising it.
Head of eurozone’s largest bank quits after long-running row over past criminal conviction
One of Europe’s most powerful bankers, the Santander chief executive, Alfredo Sáenz, has resigned after a long-running row about whether he should be banned from heading the eurozone’s largest bank.
The shock replacement of 70-year-old Sáenz by internal candidate Javier Marín comes just two weeks after the Bank of Spain ordered a review into whether or not he would meet new rules governing bank executives with criminal convictions. Sáenz was convicted in 2009, and handed a three-month suspended jail sentence, for deliberately making false allegations against four businessman who owed money to his previous bank, Banesto.
The businessmen were remanded in jail in 1993, but later proved their innocence. Sixteen years later they won a case against Sáenz. Under Spain’s banking rules at the time, the sentence automatically meant he would have been declared unfit to run a bank as soon as the appeal process ran out.
The court declared that Sáenz “knew the allegations were false, including those in later versions of the writ”. The Socialist government of José Luis Rodríguez Zapatero tried to pardon him, stating that this also included wiping out his criminal record, thus allowing him to continue at Santander. But that was struck out by the supreme court, which declared that governments could not wipe a criminal record.
On 12 April, the current conservative government of Mariano Rajoy changed the law to ensure that those with criminal records were not automatically banned from senior bank jobs. However, the law left the decision with the Bank of Spain on Sáenz’s credentials and opened a new formal inquiry a few days later. A decision had been expected in May.
The government said the new law was meant to reflect European Banking Authority guidelines, which nevertheless state that “criminal or relevant administrative records should be taken into account”.
Santander sources at the time said that Sáenz remained energetic and hard-working, so his resignation seemed unlikely to have anything to do with his health. He takes away an €88m (£74.2m) pension pot.
El País on Monday reported that the finance ministry had been opposed to allowing Sáenz to continue at the bank.
Santander has quadrupled in size since Sáenz took over as CEO in 2002, expanding into Britain by buying Abbey National, Alliance & Leicester and much of Bradford & Bingley, rebranding them with the Santander name.
“The board of directors expressed its recognition of and gratitude for Alfredo Sáenz’s extraordinary achievements,” a company press release stated.
Sáenz’s role as chief executive is more akin to that of a chief operating officer – Emilo Botin remains executive chairman of Santander. His daughter Ana Botin runs the UK arm of Santander. Santander wants to float off the UK arm but the move has been delayed until next year at the earliest.
Marín, 46, was CEO of Banif in Spain until 2007, when he joined Santander.
• Prime minister Rajoy to outline plans at midday
* US GDP due
Visitor numbers slump by a fifth in four years, but Spain, Belgium, Italy and Norway all see a rise
From Henry V to Peter Mayle, Britons have long been invading France with enthusiasm in order to claim a small corner of it for themselves.
But figures published by the Office for National Statistics suggest that the nation’s love affair with the chateaux of the Dordogne and the patisseries of Paris may be on the wane, with visitor numbers having slumped by a fifth in four years.
The ONS’s annual survey of travel trends found that British visitors to France numbered 8.8 million in 2012, well down on the 2008 figure of 10.9 million. Even more gallingly for the Gauls, while visits to North America were also down last year by 7.5% to 3.4 million, Spain, Belgium, Italy and Norway all saw the number of British visitors rise, with 2.3 million more Britons visiting Spain than France last year.
The reasons for the cooling of our French love affair were not clear, said Roger Smith, principal researcher for the ONS and the report’s author. Thanks to a combination of the Olympics, the Jubilee and the wettest April to June on record, 2012 was “an unusual year”, he said.
Spanish visitors fell by 1.2 million in 2009/10, but “what’s happened there in the last couple of years is that visitor numbers have clawed their way back to where they were”. France has not yet reversed its decline.
Jeremy Waldron, director of marketing at the Association of British Travel Organisers to France, linked the country’s decline in popularity to the financial crisis and unfavourable exchange rates. While families may be seeking cheaper deals in the package destinations in which Spain excels, “France is not seen as a cheap destination,” he said. “You go to France, to some extent, for Frenchness, not just for the destination.”
Others see Spain and Italy’s financial woes as boosting their popularity, at France’s expense. “With the eurozone crisis Spain and Italy … have become much cheaper of necessity,” said Derek Moore, chairman of the Association of Independent Tour Operators, while “in France prices continue to rise”.
In addition, he said, “local governments had stopped the massive handouts Ryanair and the like demand to fly to destinations,” leading to low-cost carriers pulling out of some routes to France.
Waldron sees the Olympics as a factor, suggesting the family and camping sectors which saw a slump were hit by families staying in Britain to watch the Games. “Every event was packed, and I think many of those people had decided not to go abroad. When they were standing on the streets in August, they were not on holiday in France.”
The overall number of trips abroad by UK residents fell by 0.5% in 2012. Incoming tourist numbers last year were up by 0.9% on 2011, although the number of those who came during the third quarter, during which the Games were held, was down on the previous year. But in part because those visitors, a total of 471,000 came specifically for the Games, spent more than in the previous year on average, earnings from visits to Britain rose by 3.6% to £18.8bn.
It means that the deficit between the amount Britons spend overseas each year and the amount visitors spend here has shrunk from £20.5 billion in 2008 to £13.8 billion last year, something which Smith describes as “a very interesting aspect to continue to watch”.
Spending cuts ‘impossible’, says Catalan economy minister, as region stalls for time ahead of expected easing of deficit targets from Brussels
The Spanish region of Catalonia will not make the spending cuts necessary to achieve its 2013 budget deficit as they would be impossible to impose, the region’s economy minister Andreu Mas-Colell told Reuters.
Catalonia would need to cut €4.8bn (£4bn) from its budget, which includes health and education spending, to meet the central government’s target of 0.7 percent of gross domestic product, Mas-Colell said.
“We will not make these cuts,” he said. “It is just impossible, I don’t know how to even start.”
Reining in the spending of Spain’s 17 regional governments is key to the country achieving overall budget deficit targets imposed by Brussels, though the goals are likely to be increased to give Spain more time, leeway that will be passed on to the regions.
Catalonia, whose leader Artur Mas is driving for independence from Spain, has an economy almost as big as Portugal’s and generates one fifth of Spanish gross domestic product. The region overshot a 1.5% deficit target by 0.5 percentage points in 2012.
Catalonia’s leader is in a standoff with Spain’s prime minister Mariano Rajoy, as the Catalans plan on holding a referendum on independence next year. The central government, meanwhile, has the power to give the region more time to balance its books.
The region’s Treasury faces total bond redemptions of €4.8bn by 3 May, according to Thomson Reuters data. Catalonia has formally requested €9.1bn for this year from the central government’s liquidity fund, of which €7.7bn will be used to pay bondholders.
The Catalan government has yet to approve its budget for 2013 – the only one of Spain’s 17 regional territories not to have done so – as it waits the expected softening of targets from Brussels for Spain.
“We think it makes sense to wait to present the budget until we know the precise (deficit target) figure,” Mas-Colell said.
Spain will increase its 2013 deficit target to 6% of gross domestic product, a government source has told Reuters, and is negotiating with the European commission for more time to cut its fiscal gap to 3% of GDP, currently targeted for 2014.
The Spanish monarchy’s legitimacy was based on symbols, metaphors and, first and foremost, on storytelling
King Juan Carlos of Spain must be one of the most Shakespearian kings, ever. His grandfather was ousted from the throne like Richard II, and like Richard III, his brother was killed (though in Carlos’ case it was a tragic accident). Like Hamlet he had a difficult relationship with his father, and like Macbeth, he arrived at the crown by way of an evil creature (General Franco). It sounds inevitable that, like King Lear, in his old age he would be cursed with troublesome daughters. Now, one of them, Princess Cristina, has been summoned by a judge. She has to answer for allegations that, together with her husband the Duke of Palma, they misappropriated millions of euros in public funds. Some say this scandal, the latest in a long series of royal mishaps, threatens the very institution of monarchy in Spain. But is it so?
The rule of King Juan Carlos of Spain is a very interesting example of how the essence of monarchy is not history, but a story – and how tricky that is. The Spanish monarchy is a literary institution. It was born outside and above the law. Its legitimacy was based on symbols, metaphors and, first and foremost, on storytelling: a mostly imaginary tale of continuity and exceptionality. Modernity changed this a bit, but not by much. Like theatre, monarchy had begun like a religious cult and ended in a popular spectacle. That was all. In stable systems like the UK, this transition from statecraft to stagecraft could be done more or less effectively, but in Spain it was pushing the trick too far.
Kings have never been popular in Spain. Of the last eight monarchs, one was overthrown by his own son, two abdicated and another two were ousted by popular uprisings. All rose to the throne in controversial circumstances, except one (who was later ousted). By the time of King Juan Carlos’s coronation, Spaniards had not known a monarch for almost half a century, the king’s legitimacy came directly from a military dictator, and the odd choice of a double name was devised to hide the fact that he was wrestling the crown from his father, also named Juan.
You need Scheherazade in person to fix this narrative. And yet, it was done by far less colourful Spanish politicians, the young Francoist and the fresh Socialists: the king, we were told, “had brought” democracy to Spain. His family was austere, like any other Spanish family. They were said to “break the protocol” so often that you end up wondering why protocol existed in the first place. It was said that republicans loved him too and would vote for him for president.
Like with all story-telling, there’s some truth in this fiction. Yes, the king did assist the transition to democracy, and he stood against the 1981 military coup. Yet the often overlooked fact here is that he had no alternative if he wanted to reign. It was true that he was not ostentatious, but he wasn’t austere either. It is true that he seems a likeable person, but not exemplary. He was a patron of the WWF, but he also loves hunting elephants. He needed not to be perfect, but now he has to, because that was the nature of the narrative his friends concocted.
The excess of fiction is now being replaced by an excess of reality. A dead elephant in Botswana and the court summons of the princess have laid that old narrative to rest. But is it really the end of the monarchy?
I’m not so sure. In our modern world, unpopularity is no longer a game-changer for institutions. All of them are unpopular to some extent, and today’s monarchy has a new, most powerful source of legitimacy, better than divine right: routine. Where it exists, it is the default setting, so to speak. It seems as stable as helium. In the case of Spain, only a profound political crisis (say, one triggered by the independence of Catalonia) could upset the balance. Meanwhile, abdication is indeed a possibility (that’s what Lear did; it didn’t work for him). Yet this would only happen because it could be construed as a fresh start, the basis for a new round of story-telling.
The economy is still flatlining, GDP is below where it was in 2008 and the chancellor has had to water down his austerity plans
Booed at the Olympics. Author of the worst received budget in memory. In charge when the economy plunged into its first double-dip recession since the 1970s. It has been a year to forget for George Osborne. And it is about to get worse.
The biggest week of the chancellor’s two and a half year stint at the Treasury began on Sunday with a dogged “no turning back” performance on The Andrew Marr Show. It will culminate on Wednesday when he delivers his autumn statement.
Although it will be dressed up as prettily as possible with the promise of a £10bn crackdown on tax avoidance, the underlying message will be that Osborne has failed to deliver the new economy – less dependent on the City and living within its means – promised on his debut as chancellor in the Treasury’s inner courtyard one sunny morning in May 2010.
Instead, as the nights grow longer in December 2012, he will have to admit that deficit reduction is off-track, that he cannot meet his self-set rules for managing the nation’s finances and that austerity will continue well into the next parliament.
“It is clearly taking longer to deal with Britain’s debts, it’s clearly taking longer to recover from the financial crisis than one would have hoped but we have made real progress,” Osborne said.
But the clock is ticking. Wednesday marks the halfway point between May 2010 and the next general election in the spring of 2015, and the expected pick-up in the economy has not happened.
Michael Saunders, UK economist at Citibank, said even after the 1% growth in the third quarter of 2012, Britain had experienced the “worst recession-recovery cycle for many decades”.
GDP is 3.1% below where it was when the recession began 18 quarters ago in early 2008. “By contrast, real GDP was 4-5% above the pre-recession peak at this stage in the 70s and 80s cycles, and 7-8% above the peak in the 1990s”, Saunders said.
In his first budget, in June 2010, Osborne said forecasts produced by the Office for Budget Responsibility showed that the economy would be expanding by 2.8% in 2012, with the budget deficit down to £60bn in the 2013-14 financial year. In the 2011 budget, the OBR said growth would be lower at 2.5% and the deficit higher at £70bn. In the March 2012 budget, it estimated growth of 0.8% and a deficit of £98bn.
On Wednesday Osborne will admit that even these forecasts have proved too optimistic.
Hopes have been dashed of a repeat of the 1980s. Then, Geoffrey Howe raised taxes and squeezed spending but saw growth accelerate in time for the Tories to win the 1983 election. Osborne has increased VAT, frozen public sector pay, made welfare less generous and announced real cuts for all Whitehall departments except health and international development. And seen the economy flatline for the past two years.
The chancellor’s critics point to key differences from the 1980s: energy prices fell sharply, there was scope to cut interest rates and the rest of the world economy began a long upswing.
The TUC’s general secretary designate, Frances O’Grady, said: “Two and a half years in and the chancellor’s masterplan to blast a significant hole in the deficit during this parliament looks decidedly like a project on the verge of failure. Despite embarking on the sharpest spending cuts in modern history, government borrowing continues to rise.”
Free-market thinktanks offer a different perspective. For them, Osborne’s problem is that he has pussy-footed around with the deficit, and deeper spending cuts would generate growth by allowing taxes to be cut.
But with the economy at risk of a triple dip recession, the chancellor believes it would be unwise to intensify the austerity programme. Instead, he is expected to push back the date at which Britain’s national debt as a share of GDP will start declining. Politically that’s a real problem, because a slower, less aggressive approach was what the previous chancellor, Alistair Darling, proposed back in 2010.
Darling accused the chancellor of a “bankruptcy of ideas” and Ed Balls, the shadow chancellor, is waiting to pounce on Osborne’s admission that weak growth means borrowing this year is going up, not down.
The chancellor’s defence will be that Britain has chronic economic problems, that Labour left him a dreadful inheritance and that he has been the victim of events beyond his control: the crisis in the eurozone and rising commodity prices in particular. He will insist that despite its track record the government is on the right course.
Doug McWilliams, the chief executive of the Centre for Economic and Business Research, said any chancellor would be forced to tackle the deficit and Osborne had been ill-served by the OBR’s duff forecasts.
Nick Parsons, head of strategy at National Australia Bank, said one success had been in protecting Britain’s AAA credit rating, now under threat. “The credit rating is much less important going forward but when it was important it was very important,” Parsons said, adding that in May 2010, Britain and Spain both had to pay just over 4% to borrow money for 10 years on the money markets. “One government had a deficit reduction plan, the other did not, which was why bond yields went to 7.5% in Spain and to 1.5% in the UK.”
Yet, Parsons added, the government has failed to exploit the benefits of low interest rates, to the irritation of its Liberal Democrat coalition partners, who would have liked Osborne to borrow cheaply to fund infrastructure projects.
Although not in the euro, Britain’s recovery has been slower than that of Germany or France. Only Italy of the G7 industrial nations has a weaker growth record and in the business community, which backed Osborne’s deficit reduction plan, patience is wearing thin.
Sir Martin Sorrell, chief executive of the advertising company WPP, acknowledged that the deficit reduction strategy had kept financial markets sweet and ensured interest rates remained low.
“That’s all fine. The trouble I have had is the overall plan. You can ask people to make sacrifices and talk about grim times but it becomes a self-fulfilling prophecy if you don’t have a plan.” Sorrell said it was a political mistake to cut the top rate of tax for the rich when living standards for the less well-off were being squeezed. He said action was needed on technology, hard and soft infrastructure, tax, immigration, and housing. “These are all the things that make a comprehensive plan. The coalition does bits but it doesn’t look like a joined up plan.”
Terry Scouler, chief executive of the EEF, which represents manufacturers, agreed. In the 2011 budget Osborne hailed the “march of the makers”, but Scouler said: “If this were a classroom and we were marking the government, even allowing for issues beyond their control such as the eurozone, our message would be ‘could do better’.” Scouler rejected the argument that Osborne’s problems were not of his own making. “The government didn’t respond quickly enough to the re-emergence of the eurozone crisis in 2011.”
One manufacturing firm bucking the trend is David Nieper, a clothing firm based in Alfreton, Derbyshire. The company, which celebrated its 50th anniversary in 2011, has thrived while most of Britain’s textiles industry has disappeared by direct selling of quality products at home and abroad.
Managing director Christopher Nieper said the firm had continued to grow throughout the recession, and was producing 25% more than it was this time last year. “We had our highest sales last year in our 50-year history.”
Nieper says the firm has succeeded by developing a niche market: upmarket clothes made to order for customers with plenty of disposable income, mostly in the 40-plus age range. The company exports 36% of its production, turnover has gone up from £600,000 to £14m in the past 10 years, and 30 new members of staff were hired in the past year.
Yet Nieper said manufacturers needed more help from the government, adding that the cuts in capital allowances to finance lower corporation tax rates were a mistake. He urged cuts in national insurance contributions – “a tax on jobs” – to encourage hiring and do more to develop skills.
Green groups worry that the pressure to get the economy moving is leading to Osborne playing fast and loose with the environment. Dave Powell, economics campaigner for Friends of the Earth, said that in opposition, Osborne had been critical of Labour’s record on climate change, but it had been a different story since May 2010.
The chancellor, Powell said, had opposed long-term targets for de-carbonisation, promoted a dash for gas, provided tax breaks for North Sea exploration while hacking away at subsidies for renewable energy, cut spending on home insulation, hamstrung the new Green Investment Bank and backed the construction of new roads and airports.
“We have a sense of despair. There is such a pressing need to decarbonise the economy but we are still fighting the old short-termist battles. You still get the impression that for Osborne looking after the environment is a luxury.”
The chancellor and his team know that the next 12 months are crucial. Osborne believes that if he can get the economy moving in 2013 there is still time to win an election on the basis that Labour’s mess is being cleared up.
Current portents are not good. The Organisation for Economic Cooperation and Development predicted last week that the UK would grow by just 0.9% and Sorrell said the mood of business was downbeat. “Planning our business in 2013 we are taking a very cautious approach. It’s going to be quite tough.”
Lord Oakeshott, a former Liberal Democrat Treasury spokesman, said a big problem was the unwillingness of the banks to lend. RBS and Lloyds – the two banks in which the taxpayer has a large stake – between them account for 60% of the small business market. “There has been a monumental failure to face up to that.”
The other problem, Oakeshott added, was the Treasury itself. “It is like a beached whale watching as the economic tide goes in and out”, he said. “There is much talk of Plan B. The Treasury only has a Plan I: I for Inertia.”
Breakaway parties in Belgium, Scotland and Catalonia are fuelled by a complex mix of issues around identity and sovereignty
It’s always tempting to look for straightforward explanations for complex phenomena. The latest example is the rise of secessionist parties in several European countries, notably Belgium (Flanders), the UK (Scotland) and Spain, where this weekend Catalonia is holding regional elections, the outcome of which could pave the path towards independence. Most commentators tend to explain it primarily by economic factors. A more careful analysis would suggest that a number of other factors are at play. While the economic crisis has undoubtedly exacerbated matters in some cases, especially in Catalonia, it is far from being the most important factor explaining why secessionist parties are in the ascendancy.
The first element to appreciate is that these parties all operate in regions with a longstanding identity as distinct nations within their respective states. Walker Connor, the prominent American scholar of nationalism, showed long ago that regional nationalism is never primarily economic in character. This is because economic imbalances deepen tensions between communities but do not define the identity of such communities. Economic disparities in Germany and Italy, for instance, are as great as, if not greater than, those in either Belgium, Spain or the UK, yet no rise in support for secessionist parties has taken place. The case of Italy is particularly instructive. The Northern League‘s attempt to forge a separate national identity for Northern Italy out of little more than economic grievances has failed spectacularly, and the outcome of next year’s general election will likely not be kind to the party. Meanwhile, the government in Rome, the most “northern” in decades, is spearheading a degree of “recentralisation”.
Specific factors, unrelated to the economic crisis, have played an important role in each of these cases. In the Basque Country, a turning point was the effective demise of Eta, which made possible the unification of the leftwing secessionist forces under the banner of Euskal Herria Bildu. In Catalonia, the ruling CiU party federation has been seeking a new financial settlement with Madrid since the early 1990s, and it was the curtailment of the region’s new statute of autonomy by the Constitutional Tribunal in 2010 that fuelled secessionism.
As for Flanders and Scotland, the fact that the nationalist parties are led by charismatic politicians with a strong personal following, Bart de Wever and Alex Salmond, respectively, has made secessionism appear more popular than it actually is.
Beyond these particular conditions, there are also shared longer-term factors at play. The first is the enduring appeal of the notion of sovereignty. In spite of having been repeatedly pronounced dead, sovereignty is in fact still an attribute that makes a substantial difference to national communities’ ability to govern themselves in today’s – supposedly “post-sovereign” – world and explains why those who do not possess it are powerfully motivated to acquire it.
Second, and relatedly, federal and quasi-federal structures have clear limitations. The autonomy enjoyed by stateless nations within a federal system can only go so far and will always remain a second best in the eyes of many. Once the transformation of the state from a unitary to a federal or quasi-federal order is completed, as in Belgium, Spain and the UK, the question of independence is bound to arise sooner or later.
Last, the EU context is a facilitating condition. Uncertainty over the legal framework governing the creation of new states within the EU allows secessionist parties to play the European card with a considerable degree of credibility, while state-wide parties have largely failed to exploit the European dimension to their advantage.
The growing popularity of secession is thus not primarily a product of the economic crisis. It has deeper and more complex roots and will not go away when the economy recovers. Although, in all these cases, the mass public is considerably less supportive of secession than the nationalist parties, it would be a mistake for both the state governments concerned and the EU to simply dismiss it or wish it away. The primacy traditionally given to raison d’etat (national interest) and the stability of international borders should give way to a more constructive response to the aspirations of many in Europe’s stateless nations.