Josep Borrell and Joan Llorach are engineers and economists --the former has an outstanding record of public service as Spain’s Secretary of the Treasury, Minister for Public Works and Chairman of the European Parliament-- who have made a contribution to the discussion of the financial pros and cons of independence and we must thank them for it. Many books have been penned on the subject, but very few have come from the unionist camp, which is where both authors stand.

Unarguably, the central tenet of their book --“Las cuentas y los cuentos de la independencia” (“The Accounts and Fairy Tales of Independence)-- is the €16bn that Catalonia would get to keep each year by wiping off the current fiscal deficit with Spain, which Borrell and Llorach regard as the main premise of the pro-independence argument. On this point, they write that “one has to admit that the €16bn is a great invention for independence supporters, so congratulations are in order” (p. 80)

However, the €16bn is not a figment, but hard data supplied by Spain’s Treasury, which in 2008 estimated Catalonia’s fiscal deficit at 8 per cent (actually, 8.7) when it published the 2005 fiscal accounts, as per the monetary flow method. Eight per cent of Catalonia’s GDP (€200bn) is €16bn.

The bulk of the book emphasises that an independent Catalonia would have to provide a range of services that are currently rendered by Spain, which means that the savings of independence would actually be smaller. On this point, the authors write: “The separatist narrative has already enshrined that these costs --which should be deducted from the savings of €16bn that independence would allegedly bring-- would only amount to two or three billion (...) Professor Bosch has stated that much on a number of occasions (...)”. And they conclude that “€6bn would be a very conservative estimate of the cost of the new country’s structures”. Borrell and Llorach obtain this figure by analysing some services, chief among which is defence, which they estimate at €1.2bn, if the size of Catalonia’s armed forces were proportional to Spain’s (p. 69)

Still, one of the best-sellers of the “separatist narrative genre”, a book which I know well because I co-authored it (“Like Austria or Denmark”), claims that “according to Bosch and Espasa’s estimates, the costs that are currently being covered by Spain and that an independent Catalonia would have to pay for amount to €8.5bn” (p. 38). This figure includes defence expenditure, which we estimated at €1.4bn

To paraphrase Borrell and Llorach, it is up to the reader to decide whether the accounts provided by independence supporters are consistent with the authors’ tales.

A good deal of the rest of the book criticises that the €16bn estimation by the Catalan government is the result of “neutralising” the deficit actually recorded in recent years, which is much less. This is their argument: the Spanish state has paid for the services rendered with tax revenues and through borrowing. The Catalan authorities believe that this debt will eventually be paid off and, therefore, they add the Catalan share (nearly 20 per cent) to the taxes that Catalans have effectively paid.

Borrell and Llorach denounce this practice arguing that “this approach stems from the implausible notion that public debt will eventually be paid off in its entirety, but obviously (...) a country may refinance its debt --within certain limits-- so long as the growth of its economy  means that its debt ratio is decreasing (debt/GDP)” (p. 87)

The applicability of this line of reasoning depends on the relationship between the debt’s interest rate (which increases the numerator) and the GDP’s rate of growth (which increases the denominator). At present, Spain’s debt bears an interest rate of about 2 percent (10 year bonds) and the country’s GDP is growing at 3 per cent. Therefore, it is true that the debt burden is slowly becoming lighter without having to do anything.

Nevertheless, we shouldn’t examine what is happening at the moment, but in the coming decades, when the economically active population will tend to be smaller in Spain. As a result, the EU forecasts that Spain’s GDP will grow at a rate of only 1.4 per cent in the long run. As for interest rates, everyone believes that --sooner or later-- they will stop being as low as they are today. While Borrel and Llorach’s argument is true in theory, it is unacceptable in practice. And it is significant that Germany, the European nation that is best preparing for the prospect of an aging population, has got down to work to reduce the country’s public debt.

To sum up, I welcome Borrell and Llorach’s attempt, but would encourage them to try again with better arguments.